Disadvantages of Full Cost Plus Pricing

Disadvantages of Full Cost plus Pricing

1.    Competitor is ignored

In full cost plus pricing system competitor prices are ignored, which is a key factor for determining the price. Ignoring competition can bring huge losses to the organization.

2.    Market conditions are ignored

Full cost plus pricing system does not take into account the market condition i.e. demand & supply of the product, which again a key consideration for price determination.

3.    Profit Margin Decision

Management takes the profit margin decision, which could be very biased decision. There is no mechanism for profit margin. Biased decision making in this regard can bring heavy damage to the product.

4.    Full cost is difficult task

In many cases there is not possible to calculate the full cost of the product i.e. very small products, or different variety of product is being produced under same roof.

5.    No incentive for Cost Control

Profit is guaranteed in this method, therefore there is no incentive to control the cost.

6.    More Wastage is Expected

Due to guaranteed profit, there is no incentive to control wastage in the production process.