i need more explain to understand

project cost and adding a standard mark-up for profit. Lawyers, accountants and other the product. Construction companies, for example, submit job bids by estimating the total The simplest pricing method is cost-plus pricing adding a standard mark-up to the cost of their customers they will charge cost plus a specified mark-up: for example, aerospace professionals typically price by adding a standard mark-up to their costs. Some sellers tell To illustrate mark-up pricing, suppose a toaster manufacturer had the following costs and of Business Administration 33 COST BASED PRICING COST PLUS PRICING Department of Marketing & Commerce companies price this way to the government expected sales: VARIABLE COST - $10 FIXED COST - S 300,000 EXPECTED UNIT SALES - 50000 Then the manufacturer's cost per toaster is given by: Unit cost = Variable cost + Fixed Cost/Unit sales =$10+$ 300000/50000 - $16 Now suppose the manufacturer wants to earn a 20 per cent mark-up on sales. The manufacturer's mark-up price is given by Mark-up price = Unit Cost/1.0 - desired return on sales = $ 16/1.0 -0.2 - $ 20 The manufacturer would charge dealers $20 a toaster and make a profit of $4 per unit. The dealers, in turn, will mark up the toaster. If dealers want to earn 50 per cent on sales price, they will mark up the toaster to $40 ($20 + 50 per cent of $40). This number is equivalent to a mark-up on cost of 100 per cent ($20/$20). Does using standard mark-ups to set prices make logical sense? Generally, no. Any pricing method that ignores demand and competitors' prices is not likely to lead to the best price. Suppose the toaster manufacturer charged $20 but sold only 30,000 toasters instead of 50,000. Then the unit cost would have been higher, since the fixed costs are spread over fewer units and the realized percentage mark-up on sales would have been lower. Mark-up pricing works only if that price actually brings in the expected level of sales. Pricing Decision and Control