Business Management Theory Assignment, Part 3, Section 3
The primary goal of any business is to make profit…bottom line. A business that does not turn a profit does not stay in business very long. One aspect of operating a business involves price setting of items or services; prices that are fair to the business and to the customer. According to the text book, “Pricing objective are the goals that sellers hope to achieve in pricing products for sale.” There are several pricing objectives that a business can model after, each have pro and cons. A business that sets prices to maximize profit is using the profit-maximizing objective. A business trying to dominate the market is using the market share objective. A business using the profit-maximizing objective has to plan carefully. If prices are set low the company will sell many items but miss out on additional profit. If prices are set high the company will make a large profit per unit but will not sell the number of units needed. Careful planning by managers is required. A business using the market share objective plans for the long run. The business’ objective is to own/control the largest percentage of the market shares. The business may be even willing to accept minimal profits, even losses to get buyers to try products. In addition to pricing objective, a business has several tools to use when deciding on a final price: 1) cost-oriented pricing and 2) breakeven analysis. According to the text book, cost-oriented pricing is the business’ desire to make a profit (variable cost – cost to manufacture the item, raw material, direct labor (it will vary directly with the level of output)) and the need to cover the cost of doing business (fixed cost – includes salaries, supplies, repair & maintenance, advertising, accounting an legal, rent, telephone, utilities, insurance, taxes, interest, depreciation, owner’s draw). The formula used is: markup percentage = markup/sales price * 100 percent....
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