What is minimum pricing, Strategic Management

Assignment Help:

Q. What is Minimum pricing?

The minimum transfer price an internal seller would accept will depend on whether it has spare capacity to utilise or not.   

If spare capacity exists the relevant cost and therefore minimum price to a seller would be the variable (marginal) cost of production e.g. extra cost of making and selling one more unit.  Variable (marginal) cost would be the only cost considered by a seller because fixed overhead is normally unavoidable and would not change if supply did or did not take place. The variable (marginal) cost represents the absolute bare minimum transfer price to a seller, in circumstances of spare capacity, at this price, the seller would be indifferent but not out of pocket.  Marginal costing may also be appropriate when no intermediate market exists for the seller e.g.  Seller can only sell to an internal customer and no external customers are available.

If full capacity exists, the seller would have to turn away external customers and business will be lost if further internal supply were to take place.   Because of this dilemma the seller would normally want a minimum price at least equal to the external market price it would normally charge when selling to external customers, this is assuming there is no difference in the cost of supplying internal or external customers e.g. differences in packaging, delivery or marketing costs, in which case the price would normally be adjusted. 

The minimum transfer price for a seller at full capacity is generally the external market price, if for some reason the seller maybe discontinuing other products to supply internally, then the minimum price would be the variable (marginal) cost of production and the lost contribution from discontinuing other products for internal supply to take place e.g. the variable cost and contribution lost being the opportunity cost.


Related Discussions:- What is minimum pricing

Integrated marketing communication, Integrated Marketing Communication (IMC...

Integrated Marketing Communication (IMC ) and Marketing Channel strategy : Develop a promotional strategy addressing the advertising and sales promotion aspect of communic

Define managerial process of crafting & executing strategy, Define Manageri...

Define Managerial Process of Crafting & Executing Strategy the managerial ins & outs of crafting & executing company strategies. Special thought is given to management's direc

Strategic plan, do all organisations need strategic plan/ and what are the ...

do all organisations need strategic plan/ and what are the characteristics of good strategic plan

What do you mean by dual pricing, Q. What do you mean by Dual pricing? ...

Q. What do you mean by Dual pricing? Dual transfer pricing means setting one transfer price for the internal seller and another transfer price for the internal buyer.  The basi

Real Option, I have one real option problem I need help with

I have one real option problem I need help with

Compensation:strategic perspective, Prepare a paper analyzing the role of M...

Prepare a paper analyzing the role of Macro Environmental Analysis and Perceived Task Environment at your workplace, or an organization of your choice. In the paper, discuss one tr

Beyond budgeting approach, The beyond budgeting approach may include the fo...

The beyond budgeting approach may include the following: Use of rolling budgets concentrating on cash forecasts and not cost control. Budgets revised more frequently

Discuss the main categories of the matrix, Question: (a) ‘Many organi...

Question: (a) ‘Many organisations are using the internet a tool for survival. Digital firms require new organisational designs and management processes'. Explain how the Por

Dominant strategy combination, Janet decides to play a game with her childr...

Janet decides to play a game with her children, Jay and Jill (who are fraternal twins) and Mo. Each child is in their own room and cannot communicate with each other. Suppose Jill

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd