2016-12-28 14:47

In business there are different types of costs. For pricing purposes industries need to classify there costs. For example: direct costs, indirect costs, fixed costs etc. Each of these costs has separate unit. For pricing and costing a business must calculate unit cost to make sure how much are their costs. Then they have to deal with over heads that's are: raw materials, utility, rents etc. After that they have to make sure about pricing but it is depends on the firm's average costs and on the customer's opinion of a product value. For pricing purposes some important costs have to be calculated, such as: cost plus, marginal cost, price taker etc. In here they have to identify that which contractor is paid for the costs incurred and is paid an agreed upon percentage of such costs as contractors profit is called cost plus. Besides this a firm have to calculate marginal costs, its allocates only variable costs i.e. direct materials, direct labour and other direct expenses and variable overheads to the production. It does not take into account the fixed cost of production. This type of costing emphasizes the distinction between fixed and variable costs. However most investors are price takers as their actions in selling and buying stocks isn't enough to change the price. Also note that a company can be regarded as a price taker if the price sets and quantity of the goods it produces doesn't have any influence on the actual market price, so forcing the company to go with the market price. Any individual consumer is also considered to be a price taker; this is because the purchase made doesn't affect the price a company sets for its products. There is also an important costing method that is break even it means neither a profit nor loss has been gained, this can be seen after balancing the costs.