Minimum Product Pricing
The minimum price is charged to cover the following cost.
- Incremental cost of unit produced
- Opportunity cost of alternative sacrificed, however ,no opportunity cost is charged where there is spare capacity and no scarcity or resources.
Why Minimum Price Charged
There is no concept of charging the minimum price but this concept is used for the two main reason.
1. Know the Minimum Price
The management would like to know the minimum price of the product so that management would be careful in pricing decisions.
2. Incremental Profit
Minimum price will help to determine the incremental profit would be obtained from setting a certain price.
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