Objectives Analyze costs and expenses to determine break even point Recognize consumer perceptions based on price Consider legal and ethical pricing issues

Break Even Point (BEP) – the point where sales revenue equals the costs and expenses of making and distributing a product. Job One for any business is to know their break even point Costs + Expenses per unit Revenue Generated - Quantity Produced + Amount above BEP = profit Expenses Fixed + Variable

Perception may or may not = reality! High Price = High quality High Price = Rip off! Low Price = Poor quality Low Price = Value Odd / Even pricing concept Odd number price = value. Example - $ Even number price = quality. Example - $200.00

Price Fixing – when competitors agree to certain price ranges. Legal? Loss Leader – item priced at or below Break Even Point. Legal? Price Discrimination – charging different prices to different customers in similar situations. Unit Pricing – including price information for a standard unit of measure. Legal? Yes – Required some places Legal? Varies

Assignment Work independently. Look at this scenario and then determine the pricing answers required. Your company is producing the latest cool gadget called a “thingamabob.” 1)Determine Break Even Point for a variety of manufacturing & sales volume levels 2) Using results from #1, determine price for each profit margin given Sales Volume Variable Cost of goods Variable Sales Comm. Fixed Costs Rent, etc. Total Costs (BEP) Unit Cost = BEP ÷ Sales Volume 1000$10,000$15,000$80, $18,000$32,000$80, $25,000$48,000$80, $30,000$70,000$80,000 3)Answer this question: When might a company implement a variety of profit margins as shown here? A – loss leader, sale item, clearance, promotion, etc. Unit Cost10% Margin (x 1.1) 25% Margin (x 1.25) 33% Margin (x 1.33)