Does Cost determine the price?
Price is the essential part in every commodity. It is the heart of every business. According to the dictionary price is a value or worth. But in manufacturing it is the value or worth of a commodity above all the cost. In marketing it is the value that is equitable above all the cost and within the customer buying power and is competitive compared to its competitor. To determine the price of the commodity is dependent to four factors. 1. It is dependent on the cost of making or manufacturing. 2. It is dependent on the buying power of the consumer.
3. It is dependent on its competitiveness with respect to its competitor. 4. Price is dependent and can be controlled by the government. Then what is a fair and reasonable price. A fair and reasonable price is defined by what a prudent person would. pay in the conduct of business, and it does not necessarily mean the lowest offer. Price can be determine further by means of price analysis it means the process of examining and evaluating a prospective price without evaluation of the separate cost elements and proposed profit of the individual offer.
In price analysis, you evaluate an offer by comparing it with indicators of reasonableness. Primary comparisons include competitive analysis and published prices. Secondary comparisons include comparative analysis (previous contracts, prior quotations), market data, price indices, government price lists, NAFI estimates, discounts, and rebates. If you are using a previous contract, you will need to ensure that a price reasonableness determination was made. There are also price related factors that will determine the price.
Some examples include— • Multiple awards (the costs associated with awarding multiple contracts). • Logistical support requirements, e. g. , maintenance, warranty protection or repair, training, installation, technical manuals, spare parts, and supplemental supplies (Request prices for all such services needed either on per service basis, package basis or some combination. ) • Life cycle costing, e. g. , expected life, salvage value, discounted total cost of ownership. (Select life cycle costing for equipment with an expected life greater
than one year if there are sufficient data, from market research. ) • Projected economic price adjustments • Transportation costs (Select either the free on board (f. o. b. ) term that will cost the NAFI the least, based on acquisition history, or request offers with and without transportation costs. ) • Packaging and marking (If packaging requirements are above regular commercial packaging practices, the cost must be considered a factor. ) In the above views we can conclude that not only cost will determine the price of the commodity but some other factors.