# Explain what is break-even pricing method in Pricing Decisions ( Part 4

October 15th, 2006 Comments off

In the earlier article, we have dealt with the importance of making the correct pricing decisions and the factors to consider before making a pricing decision.

This article refers to the various methods of pricing which include the following:

• Full Cost Plus pricing;
• Variable/Marginal Cost Plus pricing
• Rate of Return Pricing;
• Break-even Pricing;
• Minimum Pricing;
• Standard Cost Plus
 Salient Points on Break-Even Pricing: For this type of pricing, the price at which the products will break-even is used. This break-even price will then be added a profit mark up. Simple Illustration: Fixed Cost \$25,000 Variable cost \$2.00 per unit Number of Units produced 4,000 Mark-up is 15% on the break-even price What will be selling price to the customers? Solution: Break-even price = Fixed Cost + Variable cost/marginal cost Total Number of units produced = \$25,000+ \$8,000 4,000 = \$8.25 + mark up of 15% (\$1.24) =\$9.50 which is the selling price to the customer.

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