Cost Based Pricing Flashcards, test questions and answers

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What is Cost Based Pricing?

Cost-based pricing is a pricing strategy where the price of a product or service is based on the cost to produce, distribute and sell it. This type of pricing strategy takes into account all of the costs associated with creating, marketing and selling a product or service. It can be used as a way to ensure that all costs are covered and that the company is making a profit. It also allows companies to have more control over their pricing decisions.The cost-based approach has several advantages. It helps companies ensure that they are making enough profit on their products and services, which can help them remain competitive in their market. In addition, it encourages innovation since companies have an incentive to reduce costs in order to lower prices while still maintaining a healthy profit margin. Finally, this approach allows businesses to better understand their customers’ needs by taking into account factors such as demand elasticity and customer preferences when setting prices for new products or services.However, there are also some potential drawbacks associated with cost-based pricing strategies. For instance, if the costs associated with creating or delivering a product or service fluctuate significantly over time, then this can lead to frequent price changes for customers which may not be desirable from an organizational standpoint. Additionally, if competitors are able to offer similar products at lower prices due to lower production costs then this could put your business at risk of losing market share and revenue in the long run unless you are able to adjust your own prices accordingly.