STANDARD COST PRICING Definition

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STANDARD COST PRICING is a development of the cost-plus approach to setting prices is to use cost 'standards' based on management accounting systems. Variable costs of production (materials, labor, bought-in components, etc.) are added up and divided by the number of units intended to be produced to give a variable cost per unit. Similarly running costs of the organization (rent, rates, energy, maintenance, together with management and administrative costs) are totaled and divided by the number of units to be sold to provide the fixed cost per unit. Finally the profit required is added in on a per unit basis. Adding together the variable cost, fixed cost and profit per unit gives the selling price.

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