Usefulness
Cost-plus pricing is specially useful in the following cases:
- Public-utility Pricing
- Finding out the design of the product when the selling price is predetermined i.e. product tailoring. By working back from this price,the product and the permissible cost is decided upon. This means that market realities are taken into account as this approach considers the viewpoint of the buyer in terms of what he wants and what he will pay
- Pricing products that are designed to the specification of a single buyer-the basis of pricing is the estimated cost plus gross margin that the firm could have got by using facilities otherwise
- Cost-plus pricing is useful in cases like 'Monopsony Buying' - here, the buyers have enough knowledge about suppliers' costs. Thus, they may make the product themselves if they do not comply with the offered prices. So, relevant cost would be the cost which a buying company would incur if it made the product itself
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