Many firms’ prefers using cost-plus pricing for most of their supply contracts because it gives an opportunity to develop a large project whose capital or start up amount is hard to determine or predict. It simply means that using the cost-plus pricing assist the firms in doing the estimates of the amount of task that is required to be completed with a stipulated period of time. It is also a convenient way to price their products by determining the break-even – point of the goods in question. The entire process takes place through the calculation of the production, distribution along with the marketing cost.
The cost-plus pricing is likely to encounter financial constraints due to the fact that it demands for high accuracy in the due process of determining the required costs. This may not be possible all throughout the financial year thus resulting in a critical discrepancy between the organizations; estimates and actual costs. Another envision challenge is the fact that the process relies on assumptions may lead to a wide difference between the variable and estimates.
Gina should go ahead to contest for the price increases because the prices increase is in line with the contract. In other terms that the increase of prices I s as a result of increase in the production cost. The increase was increased by the projected increase of machine part along with the labor for the union contract.
The increase in prices is likely to be justified in the long run because the impact of the new union would be realized after a few years or longer period of operation and also the labor cost would keep increasing since the machine part cost is increasing.
The organization production decision would be affected by the $3 increase of the machine parts in such a way that the general production cost would tend to increase. This would adjust the cost for the production in an attempt to minimize on the production cost. It therefore would affect the production decision as to what is to be done to reduce the production so as to maintain the market price and remain their competitive position in the market share.
The president is recommended to take into account the changing trends of demand for the college’s service that seem too costly. According to the data collected, there is an increase in demand when the cost of the learning service increases. This therefore means that the president opts to keep the cost of admission to the college higher as compared to the rest of the competitors so as to maintain the top most competitive position in the market. The president is also recommended to take a close study on the behavior of the market that is the shift in demand. This would offer an avenue for the immediate response to any changes or challenges that may arise as a result of increase in the admission cost.
Susan analysis is based on a demand approach only. She paid more attention on the customer behavior to changes in price. It categorically stated that there as increase in demand with the increase of the admission cost. It therefore expounds on the fact that the organization earning more customer trust and loyalty when there is an increase in the cost. This gives the institution a good reputation and customers develop an attitude of quality and timely service provision for the student. It is recommendable of the admission board to pay attention to the connection between the financial aid and the increase in cost.
Chen, J., & Tang, H. R. (2013). Determination of Comprehensive Unit Price of Variation Using Cost Plus Profit Principle. Applied Mechanics and Materials, 357, 2159-2163.