You are the manager of a successful gift shop. After a meeting with her accountant, the owner of the shop has told you that the shop’s cost of goods sold should be about 30 percent of total sales revenue and that the price of each of the items that the shop sells should be in line with this.
(a) Based on the owner’s instructions, give the price you would set for the following items. Show the formula(s) you used in your calculations:
Item A Per-item cost: $26.00
Item B Per-item cost: $9.25
Item C Per-item cost: $103.60
(b) Is the owner using cost-based, competition-based, or customer-based pricing? What are the pros and cons of the owner’s pricing procedure?