Costs
1. Total fixed cost is the sum of those costs that are fixed in total - no matter how much is produced. Among these fixed costs are rent, depreciation, managers' salaries, property taxes, and insurance. Such costs stay the same even if production stops temporarily.
2. Total variable cost, on the other hand, is the sum of those changing expenses that are closely related to output - expenses for parts, wages, packaging materials, outgoing freight, and sales commissions. At zero output, total variable cost is zero. As output increases, so do variable costs. If Wrangler doubles its output of jeans in a year, its total cost for denim cloth also (roughly) doubles.
3. Total cost is the sum of total fixed and total variable costs. Changes in total cost depend on variations in total variable cost - since total fixed cost stays the same. And there are three kinds of average cost:
1. Average cost (per unit) is obtained by dividing total cost by the related quantity (that is, the total quantity that causes the total cost).
2. Average fixed cost (per unit) is obtained by dividing total fixed cost by the related quantity.
3. Average variable cost (per unit) is obtained by dividing total variable cost by the related quantity.
Cost-oriented pricing requires an estimate of the total number of units to be sold. That estimate determines the average fixed cost per unit and thus the average total cost. Hen the firm adds the desired profit per unit to the average total cost to get the cost-oriented selling price. How customers react to that price determines the actual quantity the firm will be able to sell. Further, the quantity the firm actually sells (times price) determines total revenue (and total profit or loss). A decision made in one area affects each of the others - directly or indirectly. Average-cost pricing does not consider these effects. A manager who forgets this can make serious mistakes.
Related Tags: cost, total cost, fixed cost
The article was produced by the writer of masterpapers.com. Sharon White is a senior writer and writers consultant at Psychology essay. Get some useful tips for psychology research paper and technology essay .
Your Article Search Directory : Find in ArticlesRecent articles in this category:
- Tips To Better Prepare Yourself For The House Buying Process
Everybody who has been through the process of buying a home will attest that it can turn into a very - Gain Qualified Prospects With The Cash Cow Sales Funnel
I've had the privilege to work with hundreds of sales and business people all working hard to make m - How To Write A Good Telemarketing Sales Script
By defining your specific selling process you will be able to apply a system that works over and ove - The Popularity Of Antique Cabinets Over The Years
Ever since collectors have been hoarding pieces of value and interest, antique cabinets have been ar - Guide In Selecting Clothes Hangers
One of the least respected areas in your home is your wardrobe. Most of the time it is stuffed with - Does Mattress Manufacturer In China Reliable?
The time we spend on bed is almost 1/3 of our whole life! So it's very important for everybody to se - What Makes A Good Salesperson
This fact is not hidden nor is this thesis cutting edge. There are a lot of personality and professi - Proper Preparation Prevents Poor Performance: Tips & Tools To Increase Productivity
Prior proper planning prevents poor performance. It may be a tongue twister, but it's important to r - Attractive Votive Candles
Impeccable range of candles and lanterns enhance home interiors. Simple yet elegant in design and fi - Sales Articles - Do You Want To Find Building Maintenance Supplies In Your Area?
Building maintenance supplies are among key factors to protect buildings against excessive depreciat
Most viewed articles in this category:
- Cold Calling - A Surprising Way To Gain Insider Information
If you knocked on all the doors in your neighborhood, you'd learn a lot about the people who live ar - How To Touch More Clients For Referrals
Interested in more referrals? Want to guarantee success in any referral marketing program? Here is a - How to Embrace and Thrive in Today's Buyer's Market
As fun as the last few years were to be in a piping hot real estate market, it's now time to accept - The Power of One
One is a very tiny number. However, it can have a tremendous impact on your revenues. Here are some - Sell Your Customer What They Need
When it comes to selling your products it is important to ask your potential customers probing quest - Profiting With Private Label Rights
There are three basic rights you should know about when it comes to resale rights marketing. T - The Lazy Way to Increase Your Sales Immediately... without spending a penny!
Let’s start at the beginning… First up, how do you define an affiliate program, or affi - Your Sales Self-Image
All sales success is the result of a foundation grounded in right attitudes and positive self-esteem - Sales And Marketing - Let Others Do The Work
There are many different ways in which businesses of today approach potential prospects and customer - The Financial Influencer
In my last article, I talked about the four influencers you have to deal with in a B2B sale. The fou