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

Benefit in a global market, 1.  Execute an e-strategy in an organisation. ...

1.  Execute an e-strategy in an organisation. 2.  Develop processes to monitor the execution of an e-strategy in an organisation. 3.  Assess how an e-strategy contributes to

Sushilicious, What are Woo''s challenges in February 2011?

What are Woo''s challenges in February 2011?

Financial perspective for not-for-profit organisations, Q. Financial perspe...

Q. Financial perspective for not-for-profit organisations? The primary objective is profit for most organisations, but for an NPO they are non-profit making. Value for money (V

CompXM, The statement of cash flows for Baldwin Company shows what happens ...

The statement of cash flows for Baldwin Company shows what happens in the Cash account during the year. It can be seen as a summary of the sources and uses of cash (sources of cash

What are the causes of equipment failures, Question 1: (a) What is vi...

Question 1: (a) What is vibration monitoring? Explain, with examples, how can it be useful in industries. (b) Briefly, explain the sources of contaminants which are comm

Diagnosis of endometriosis, C.M. is a 28-year-old woman with a long history...

C.M. is a 28-year-old woman with a long history of dysmenorrhea managed for many years with oral contraceptives. She stopped taking the pill 8 months ago in anticipation of becomin

Market segmentaion, how to write an assignment on market segmentaion

how to write an assignment on market segmentaion

Strategic management system, 1. Find one research article entitled 'Using t...

1. Find one research article entitled 'Using the balance scorecard as a strategic management system' attached here with. Read this article carefully and give your comments. You may

Problem-solving using knowledge of materials and manufacture, Based on your...

Based on your findings in Task 1, investigate the problem described in Appendix 1 and propose a solution, in terms of material choice and manufacturing process. Prepare a report

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