Cost plus Pricing Formula

Cost plus Pricing Formula

In cost plus pricing method a standard percentage of profit margins are added to the cost of the product or project. There are two methods of adding cost i.e. % profit of sales or % Profit margin on cost.

Cost Plus pricing = Cost + Profit Margin on cost

Cost Plus Pricing = Cost + profit Margin on selling Price

Example (Cost Profit Margin)

Cost = 120,000

Profit Margin on cost = 25%

Calculate the selling Price

Solution

= 120,000 x .25

= 30,000

Cost Plus pricing = Cost + Profit Margin on cost

= 120,000 + 30,000

= 150,000

Example (Selling Price Profit Margin)

Cost = 120,000

Profit Margin on Selling Price = 25%

Calculate the selling Price

Solution

Cost Plus pricing = Cost + Profit Margin on cost

= 120,000 / (1-Profit Margin)

= 120,000/.75

= 160,000