Standard Cost Pricing

Description of Standard Cost Pricing. Explanation.

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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 variable costs of production (materials 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 role of competitors is ignored. Historical accounting costs are used rather than replacement value.

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End of description Standard Cost Pricing. An explanation.