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Objectives Analyze costs and expenses to determine break even point Recognize consumer perceptions based on price Consider legal and ethical pricing issues Break Even Point (BEP) – the point where sales revenue equals the costs and expenses of making and distributing a product. Job One for any business is to know their break even point Quantity Produced Costs + Expenses per unit - + Amount above BEP = profit Revenue Generated Expenses Fixed + Variable Perception may or may not = reality! High Price = High quality High Price = Rip off! Low Price = Poor quality Low Price = Value Odd / Even pricing concept Odd number price = value. Example - $199.99 Even number price = quality. Example - $200.00 Price Fixing – when competitors agree to certain price ranges. Legal? Price Discrimination – charging different prices to different customers in similar situations. Unit Pricing – including price information for a standard unit of measure. Loss Leader – item priced at or below Break Even Point. Legal? Yes – Required Legal? some places Legal? Varies Assignment Work independently. Look at this scenario and then determine the pricing answers required. Your company is producing the latest cool gadget called a “thingamabob.” 1) Determine Break Even Point for a variety of manufacturing & sales volume levels Sales Volume Variable Cost of goods Variable Sales Comm. Fixed Costs Rent, etc. 1000 $10,000 $15,000 $80,000 2000 $18,000 $32,000 $80,000 3000 $25,000 $48,000 $80,000 4000 $30,000 $70,000 $80,000 Total Costs (BEP) Unit Cost = BEP ÷ Sales Volume 2) Using results from #1, determine price for each profit margin given Unit Cost 10% Margin (x 1.1) 25% Margin (x 1.25) 33% Margin (x 1.33) 3) Answer this question: When might a company implement a variety of profit margins as shown here? A – loss leader, sale item, clearance, promotion, etc.