Cost-based Pricing Assignment Chart
Sales by Segment
Cafe sales to consumers
1 - 11 cupcakes
Parts Cost-plus pricing  Selling price= cost/unit+
1&2 suggested price Markup
 Selling price /unit=$1.5+
$0.5=$2/unit
 Profit/unit= selling price-
cost/unit
 Profit/unit=$2 -
$1.5=$0.5/unit
 Annual
profit=profit/unit*11unit
s/day*((48weeks*6days/
week) -(10 holidays))
 Annual profit=
$0.5*11*(288-10) =$
1,529
Annual profit= total profit -cost of hiring a person for 3 hours/week for 48 weeks
= ($1,529+$10,008+$17,280)+$17,280-($10*3hrs*((48weeks*(6days/week)-10 holidays))
= $46,097-$8,340= $37,757
Cafe sales to consumers One time sales to caterers Contract sales to
Dozen increments > 10 dozen/event restaurants
>10 dozen/ week
 Selling price=  Selling price=  Selling price/dozen=
cost/unit+ Markup cost/unit+Markup $18= $1.5/unit
 Selling price  Selling price  Selling price=
/unit=$1.5+ /unit=$1.5+$0.5=$2/un cost/unit+ markup
$0.5=2$/unit it  Profit for 1st
 Profit/unit= selling  Profit/unit for 1st 240units= $1.5-
price- cost/unit 240units=$2- $1.5=0
 Profit/unit=$2 - $1.5=$0.5  Profit for >240
$1.5=$0.5/unit  Profit/unit above 240 units=0.5
 Annual units=$2-$1=$1  Assume selling 80
profit=$0.5*12units/  Profit selling 300 dozens(960
dozen*6dozen/day*( units/event(25 units)/week for 48
dozens)=(0.5*240)+(1 weeks
(48weeks*(6days/we
*60)= $180  Annual profit=
ek)-10 holidays))
 Annual profit from 2 ((0*240)
 Annual profit= events/48weekends= +(0.5*720))*48=
$0.5*12*6*(288-10) (180*2*48)= $17,280
$17,280
=$ 10,008
Marginal cost  Selling price= Marginal
pricing suggested cost + Markup
price  $1.5+$0.25= $1.75
 Profit/unit= selling price-
Marginal cost/unit
 Profit/unit= $1.75-
$1.5=$0.25
 Annual
profit=profit/unit*11unit
s/day*((48weeks*6days/
week) -(10 holidays))
 Annual profit=
(0.25*11)*((6*48)-10)=
$764.50
Annual profit= total profit -cost of hiring a person for 3 hours/week for 48 weeks
= ($764.5+$8340+$18,720+$20,160)-($10*3hrs*((48weeks*(6days/week)-10 holidays))
= $47,984-$8,340= $39,644
Peak-load pricing  Surge price= (peak load
suggested price price for 1st240
units,cost)
+markup=selling price
 Selling price=
cost/unit+Markup
 Selling price /unit=$1.5+
 Selling price=  Marginal  Selling price/dozen=
Marginal cost + cost+markup=selling $18= $1.5/unit
Markup price  Marginal
 $1.5+$0.25= $1.75 cost+markup=sellin
 Selling price
 Profit/unit= selling /unit=$1.5+ g price=$1.5/unit
price- Marginal $0.25=$1.75/unit  Marginal
cost/unit  Profit/unit for 1st Cost/unit+markup>2
 Profit/unit= $1.75- 240units=$1.75- 40 units= $1+$0.25
$1.5=$0.25 $1.5=$0.25  Profit for 1st
 Annual  Profit/unit for 2nd 240units= $1.5-
profit=$0.25*12units 120units=$1.75- $1.5=0
/dozen*10dozen/day $1=$0.75  Profit for >240
 Profit selling 420 units=$0.25
*((48weeks*(6days/
units/event(35  Assume selling to
week-10 holidays)) dozens)=(0.25*240)+( 160
 Annual profit= 0.75*180)= $195 dozens(1920units)/w
$0.25*12*10*(288-  Annual profit from 2 eek for 48 weeks
10) =$ 8340 events/48weekends=  Annual profit=
(195*2*48)= $18,720 ((0*240)
+(0.25*1680))*48=
$20,160
 Surge price= (peak  Surge price= (peak  Surge price= peak
load price for 1st240 load price for 1st240 load price for 1st240
units,cost) units,cost) units,cost
+markup=selling +markup=selling price +markup=selling
price  Selling price= price
 Selling price= cost/unit+Markup  Selling price/dozen=
cost/unit+Markup  Selling price $18= $1.5/unit
 $0.75=$2.25/unit  Selling price /unit=$1.5+  Selling price /unit
 Profit/unit=$2.25- /unit=$1.5+ $0.75=$2.25/unit for 1st240=$1.5+
$1.5=$0.75/unit $0.75=$2.25/unit  Profit/unit for 1st $0=$1.5/unit
 Annual  Profit/unit=$2.25- 240units=$2.25-  Profit/unit for 1st
profit=profit/unit*5units/ $1.5=$0.75/unit $1.5=$0.75 240units= $0
day*((48weeks*6days/w  Annual  Profit selling  Selling price /unit
profit=$0.75*12units 240units/event (20 for >240=$1+
eek) -(10 holidays))
/dozen*10dozen/day dozens) = (0.75*240)= $0.75=$1.75/unit
 Annual profit= $180
*((48weeks*(6days/  Profit for >240
(0.75*5)*((6*48)-10)=  Annual profit from 2 units=$0.75
$1,042.5 week-10 holidays)) event/48weekends=  Assume selling to
 Annual profit= (180*2*48) = $17,280 40
$0.75*12*3*(288- dozens(480units)/we
10) =$ 7,506 ek for 48 weeks
 Annual profit=
((0*240)
+(0.75*240))*48=
$8,640

Annual profit= total profit -cost of hiring a person for 3 hours/week for 48 weeks
= ($1,042+$7,506+$17,280+$8,640)-($10*3hrs*((48weeks*(6days/week)-10 holidays))
= $34,468-$8,340= $25,828

Target cost  Target cost/unit= market
pricing suggested price/unit(selling price)-
price target margin/unit
 Market price(selling
price/unit)=Target
cost/unit(1st240 units)
+target margin/unit
 Selling price= $1.5+0
 Profit/unit= selling
price/unit- cost/unit
 Target cost/unit=  Target cost/unit= market
market price/unit(selling price)-
price/unit(selling target margin/unit
price)-target  Market price(selling
price/unit)=Target
margin/unit
cost/unit(1st240 units)
 Market price(selling +target margin/unit
price/unit)=Target  Selling price= $1.5+0
cost/unit(1st240  Profit/unit= selling
units)+target price/unit- cost/unit
margin/unit  Profit for the 1st 240
 Target cost/unit=
market
price/unit(selling
price)-target
margin/unit
 Market price(selling
price/unit)=Target
cost/unit(1st240 units)
+target margin/unit
 Selling price/dozen=
$18= $1.5/unit
  Profit for the 1st 240
units= 1.5-.15=0
 Annual
profit=profit/unit*5units/
day*((48weeks*6days/w
eek) -(10 holidays))
 Annual profit=
0*11/day*((6
day/week*48weeks)-10
days)=0
 Selling price= units= 1.5-.15=0  Selling price /unit for
$1.5+0  Profit/unit above 1st240=$1.5+
 Profit/unit= selling 240units=$1.5-$1=0.5$ $0=$1.5/unit
price/unit- cost/unit  Profit selling 500  Profit/unit for 1st
units/event (20 dozens) 240units= $0
 Profit for the 1st 240 =(0*240)+(0.5*260)=  Selling price /unit for
units= 1.5-.15=0 $130 >240=$1+
 Annual  Annual profit from 2 $0.75=$1.75/unit
profit=$0.0*12unit event/48weekends=  Profit for >240
(130*2*48) = $12480 units=$0.5
s/dozen*14dozen/d
 Assume selling to 180
ay*((48weeks*(6d dozens(2160units)/we
ays/week-10 ek for 48 weeks
 Annual profit=
holidays))
((0*240)
 Annual profit= +(0.5*1920))*48=
$0.0*12*3*(288-10) $46080
=$ 0

Annual profit= total profit -cost of hiring a person for 3 hours/week for 48 weeks
= ($0+$0+$12,480+$46,080) -($10*3hrs*((48weeks*(6days/week)-10 holidays))
= $58,560-$8,340= $50220

Part 3 Your Peak load pricing Cost plus pricing Marginal cost pricing Target cost pricing
recommended
strategy

Rationale for your  Charges highest  Simple to execute.  To add revenues  Buyers set price
overall at peak hours to  Guarantees target and profits  get repetitive
recommended balance supply & margin.  To get foot in the orders to lower the
price/strategy* demand  Easy to defend. door cost
Seller sets price  Large quantities
make up for low
margins
Part 4 Where do you The highest margin is expected in the individual unit sales(1-11cupcakes), because small quantities are
expect the sold with higher cost
highest margin?
Why?

Where might you The lowest margin is expected in contract sales, because buyers have the power of setting selling
suggest Chris take prices, in return, they guarantee a big quantity and regular flow of orders/week.
a lower margin?
Why?

Part 5 Should Chris open Chris should open the Café if she implements the above recommended price strategies. Please see
the cafe? Explain, above Revenue and profit projections. Moreover, below is Net profit projections for a combination of the
using projected recommended pricing strategy that yields best profit for the above segments.
revenues and  Café sales to consumers (1-11 cupcakes): peak load pricing=$1,042
profits to support  Café sales to consumers dozen increments:cost plus pricing=$10,008
your decision.  Caterers (events): marginal cost=$18,720
 Restaurant contracts: Target cost=$46,080
 Annual payroll= $8,340

Annual net profit= total profit -cost of hiring a person for 3 hours/week for 48 weeks= ($1,042+
$10,008+$18,720+$46,080) -payroll cost
= $75,850-$8,340= $67,510