Question

1. Discuss price elasticity of demand and its impact on pricing.
2. How does this elasticity affect the markup over cost in setting prices?
3. What is the role of variable costing in pricing?
4. What are the problems associated with using absorption costing for setting prices?
5. Discuss the role of using target costing for pricing.

Answer 1

Price elasticity of demand

1. It means the demand for a good based on price of a good.

2. In simple manner , changes in demand of a product with the changes in price of product.

3. Impact on pricing is the factor elasticity shows high effect in the pricing because in price elasticity market pricing shows effect on the demand of the product .

4. So the product should be wisely priced with taking consideration of all the factors, like demand .

Elasticity effects the markup over cost in setting prices

1. The elasticity shows effects on the pricing of the product

2. The pricing of the product will shows the effect on the markup of the product.

3. Markup is the portion that will remain for the manufacturer.

4. Here how the elasticity effects the markup is if there is perfectly elastic then the available markup to the manufacture is less

5. Changes in elasticity leads to changes in markup of the manufacturer.

Role of variable costing in pricing.

1. Based on all the variable costing all the costs which are helpful to the pricing are varies with vary of the variable costs

Problems associated with absorption costing

1. At every time all the costs cannot be absorbed

2. So many of the costs are not available to the make absorption costing.

Role of using target costing in pricing

1. In this costing all the pricing will be done with the targeting the customers

2. For example price sensitive customers and rich customers

I hope, all the information given is useful to you.

Thank you.