1. PRICING – DETERMINING THE PRICE Wednesday, December 8

2. Two Key Factors:  The cost of doing business.  The profit that a company hopes to make from the sale of its product or service.  All businesses, big or small, retail or wholesale, manufacturer or importer… use these two factors to establish prices.

3. Markup  The amount of money that is added to the original cost of a product is there to cover business expenses and to make a profit.  It is usually a percentage of the cost.

4. Margin  The percentage of the price charged to the consumer that is not used to pay for the cost of the item.  If a product sells for $29.99 and costs $20.00 the store has $9.99 remaining in the margin.  33% margin.

5. Profit  When there is money leftover after all the store’s expenses are paid, the owners get to keep it.  This is called profit.  Calculating Profit: Markup (Margin) – Business Expenses = Profit $9.99 – $6.00 = $3.99

6. Manufacturers Costs  Products cost manufacturers less to produce than the price they sell products to retailers.  This money is used to cover the rent of the factory, supplies, salaries, and materials used to make the product.

7. Break-Even Analysis  Calculating the price to sell a product:  Step 1 – Determine how many units must be sold at a given price to cover operating costs.  This is the break-even analysis, and it is only a starting point for setting the actual price.  Once the business has covered its costs, it can start to calculate profit.

8. Elements of the Break-Even Point  In order to calculate the break-even point, a business must first calculate its variable costs, fixed costs, and gross profit (contribution margin).  In groups of 2-3, discuss each of these elements (pg. 247-248).  Read pg. 248 – 253  Define: Break-Even Point Elements of “Economies of Scale” & “Diseconomies of Scale” Answer ICE questions (pg. 253) : 1 (a), 1 (b), 1(c), 2 (a) & 3 (a)