In the business world of economic manufacturing and production, there are actually several ways and approach for one business entity to recovery their production expenses and realize profit. In this aspect, the production output is primarily the key factor in the profit generation of the business as their output serves as their revenue. In the accounting perspective, generation of revenue through using the invested resources of the business will also require additional value which is identify through regarding it as the expense. This expense cost must indeed be recover through the financial value of the product at the same time incurring profit for the business’ operation.
In this aspect that the approach of cost plus pricing basically operates wherein the financial value of the product is directly based on its production cost and the profit levied unto it by the manufacturing company as their interest. As one of the most common pricing strategy in the present market, this approach is widely implemented and applied by large production firms as its is basically also one of the most reliable and simplest form of pricing approach. Compared to the pricing strategy of target pricing which actually use the marketing value and present social factor to determine the product’s cost, cost plus pricing is determined to be applicable in longer term and to almost all production nature. However, comparing still with target pricing, the profit that can be realize from cost plus pricing is indeed stagnant and lesser than the former as this approach is purely dependent on the factors of production cost and profit margin.
Every business entity that enters the field of economic production has their vision set on gaining profit and their main motivation and interest. In this aspect that the pricing strategy of cost plus pricing is indeed significant as this ensure the profit gain and expense recovery of the production operation of the business organization.
