The computation of costs for price decisions

Business should compute costs in a particular way of pricing purposes. The correct cost computation varies with its purpose, though most executives still believe that an item has a true cost regardless of why it is computed.Even cost estimates made for price decisions will differ according to the type of price decision that is at issue. One finds important differences depending on whether one is estimating costs for a one-shot bid, for a promotional price offer that is to last for a short period, or for a decision concerning long-term price. Although the same basic principles would apply in all three cases, their application is different. The appropriate concept is that of “decision cost”, a very simple but powerful idea that leads to different cost conclusions than are reached by prevailing costing methods.