Value Addition Based Pricing
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High Quality Content by WIKIPEDIA articles! TC can be divided into 2 components: - raw material (RM) and - value addition (VA), which also includes all overheads absolute Margin (M) = P - TC or in other words margin is premium over total costs which we are charging to our customer for adding value to raw material. Before going further lets have few facts, objectives and assumptions; Fact: Every company has fixed manufacturing capacity Company objective: To maximise profit Assumption: Company faces infinite demand for its products. Now problem with TC based pricing is it does not tell us how to…mehr

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High Quality Content by WIKIPEDIA articles! TC can be divided into 2 components: - raw material (RM) and - value addition (VA), which also includes all overheads absolute Margin (M) = P - TC or in other words margin is premium over total costs which we are charging to our customer for adding value to raw material. Before going further lets have few facts, objectives and assumptions; Fact: Every company has fixed manufacturing capacity Company objective: To maximise profit Assumption: Company faces infinite demand for its products. Now problem with TC based pricing is it does not tell us how to differentiate between 2 orders. For eg. Lets assume that a company is producing two products A & B,