DEFINITION STANDARD COST PRICING DESCRIPTION

Standard Cost Pricing is an accountants approach to pricing wherein standard

variable cost per unit are calculated by adding the total varialble costs of
production (mateirials and labor) to the cost of bought-in components and dividing
the sum by the number of units produced. This type of pricing can be frequently
found in manufacturing environments.

A benefit of this approach is its simplicity. Also it is fact-based. A disadvantage

is the risk of underestimating customer demand and the value as perceived by the
customer as important mechanisms. This may result in overpricing and underpricing.
Furthermore the roles of competitors is ignored. Historical accounting costs are
used rather than replacement value.

DEFINISION ACTUAL COST PRICING DESCRIPTION

The real cost associated with purchasing materials and services, and paying
internal personnel. A standard cost system tracks actual usage, as defined by hours
or units consumed, based on a standard value, to calculate and track variances
versus the standard hours or units; an actual cost system ...