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Question
State two disadvantages of Cost plus pricing policy.
Long Answer
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Solution
- It is very often difficult to determine accurately the cost per unit due to common overheads and joint products. The method involves arbitrary allocation of costs in such cases.
- The method ignores the nature and level of demand. The resulting price may, therefore, be out of line with market conditions.
- It fails to reflect competition in the market.
- The mark-up on the cost of the product is not fixed but may change with changes in demand. In practice, the rule of thumb methods are used to determine the mark-up.
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Price - Pricing Strategies
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Chapter 2: Marketing mix - 4 P's - EXERCISES [Page 38]
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