What is Cost Plus?


Cost plus pricing is a cost-based method for setting the prices of goods and services. Under this approach, you add together the direct material cost, direct labor cost, and overhead costs for a product, and add to it a markup percentage (to create a profit margin) in order to derive the price of the product. Cost plus pricing can also be used within a customer contract, where the customer reimburses the seller for all costs incurred and also pays a negotiated profit in addition to the costs incurred.

The Cost Plus Calculation

As an example, ABC International has designed a product that contains the following costs:

  • Direct material costs = $20.00
  • Direct labor costs = $5.50
  • Allocated overhead = $8.25

The company applies a standard 30% markup to all of its products. To derive the price of this product, ABC adds together the stated costs to arrive at a total cost of $33.75, and then multiplies this amount by (1 + 0.30) to arrive at the product price of $43.88.

Advantages of Cost Plus Pricing

The following are advantages to using the cost plus pricing method:

  • Simple. It is quite easy to derive a product price using this method, though you should define the overhead allocation method in order to be consistent in calculating the prices of multiple products.
  • Assured contract profits. Any contractor is willing to accept this method for a contractual agreement with a customer, since it is assured of having its costs reimbursed and of making a profit. There is no risk of loss on such a contract.
  • Justifiable. In cases where the supplier must persuade its customers of the need for a price increase, the supplier can point to an increase in its costs as the reason for the increase.

Disadvantages of Cost Plus Pricing

  • Ignores competition. A company may set a product price based on the cost plus formula and then be surprised when it finds that competitors are charging substantially different prices. This has a huge impact on the market share and profits that a company can expect to achieve. The company either ends up pricing too low and giving away potential profits, or pricing too high and achieving minor revenues.
  • Product cost overruns. Under this method, the engineering department has no incentive to prudently design a product that has the appropriate feature set and design characteristics for its target market. Instead, the department simply designs what it wants and launches the product.
  • Contract cost overruns. From the perspective of any government entity that hires a supplier under a cost plus pricing arrangement, the supplier has no incentive to curtail its expenditures – on the contrary, it will likely include as many costs as possible in the contract so that it can be reimbursed. Thus, a contractual arrangement should include cost-reduction incentives for the supplier.
  • Ignores replacement costs. The method is based on historical costs, which may have changed. The most immediate replacement cost is more representative of the costs incurred by the entity.

Evaluation of Cost Plus Pricing

This method is not acceptable for deriving the price of a product that is to be sold in a competitive market, primarily because it does not factor in the prices charged by competitors. Thus, this method is likely to result in a seriously overpriced product. Further, prices should be set based on what the market is willing to pay – which could result in a substantially different margin than the standard margin typically assigned using this pricing method.

Cost plus pricing is a more valuable tool in a contractual situation, since the supplier has no downside risk. However, be sure to review which costs are allowable for reimbursement under the contract; it is possible that the terms of the contract are so restrictive that the supplier must exclude many costs from reimbursement, and so can potentially incur a loss.

Source: AccountingTools , Image

85 Synonyms for “House”

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A broad vocabulary exists to depict all the conceivable varieties in the structures in which people live. This rundown, which excludes most terms of outside starting point and incorporates impermanent and portable living spaces, incorporates meanings of numerous such words to help authors recognize them:

1. Abode: Any living space; often used jocularly in a mock-formal tone.

2. Apartment: A living space consisting of one or more rooms in a building or a building complex with at least a few such units.

3. Billet: Quarters in a private home assigned to a member of the military order by an official order (also called a billet), or, informally, living quarters.

4. Boardinghouse: A house that provides room and board (a private or shared room and meals).

5. Bungalow: A small one- or one-and-a-half-story house. Read more

Why rent? When you can own

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why-rent-when-you-can-ownHi there, Would you ask yourself “Hows your way of living?”, “How was your home?” “Am I renting or I owned a house? You may wonder why youre asking those questions to yourself, it’s because for one reason. To know if its really significant owning a property than renting. Most of new couple’s nowadays preferred to rent apartments, condo’s or houses for their daily living, without knowing their expenses if summed up in a long run would be enough to build a low end home you can call it your own.

I will show you an example computation or breakdown of expenses if you’re renting an apartment, condo or a house vs. or compared with the cost of building a low end livable home.

For the list number one. Lets just say range rental of apartment would be 15 k-25 k per month, in Philippine Peso, Depending on the furnishing of the apartment. We will use the mid range price per month of 20 k. In a long run with the span of 3 years if you sum up your rental expenses of your home would be equivalent of Php 720,000. Take note that most of for rent apartments floor area are studio types, which means a very small area just the primary spaces you need for living like the living area, dining, little kitchen, toilet and a sleeping quarter maybe other apartment have 1-2 bedrooms if they don’t fall in a studio type setup. To give you the figure area it would be approximately 35-60 square meter for apartments.

For the list number two, Common monthly rental of condominium units are depending to it’s size. Most of condo’s are typically studio type and the price would be much expensive than apartments aside from monthly add-on maintenance fees of condominiums and parking. Condo rentals starts a 15 k or even more, “excluded” the additional condo management fees and parking fees. To give you a range it would be 15 k-50 k monthly rate in Philippine Peso, depending on how luxurious your condo is.

So we will get  the mid price of 32 k to set as our example rental for condominiums. As what I have said lately that like apartment’s,  condo’s are more typically studio type than apartments. You will seldom see partitioned condo units unless it is customized or originally by its design. Floor area of condo’s would range from 25-50 square meter. In a 3 years span of rental you’ll arrive with Php 1,152,000. Wow! I cant imagine you’ve spent that for only renting?

For the list number three, House rentals, single detached houses range from 15k-30k also depends on size. We will get again its mid price of 22 k monthly rental of a house in Philippine Peso. So in a span of 3 years of rental you will arrive Php 792,000.

So now, do you have an idea of how much it would cost to built a low end house? Most of subdivision units has a building footprint area of their houses of 36 square meter built on a 100 square meter lot area, already provided with the provision of setbacks. Let’s just say you will built a much higher building floor area of a low end house. We will set an example of 40 square meter building footprint and lets just assumed that you have already a lot allocated to built your low end home. Maybe it is a family inherited lot or whatever available lot there for you.

Here as follows are the per square meter prices on valuation of structure’s as per rule of thumb use by architects, builders, contractors and professional’s. Also inherited by OBO on valuations of structures in determing fees imposed in applying building permits.

Livable Finish: 15,000/square meter
Economical Finish: 22,000/ square meter
Elegant Finish: 26,000 – 30,000/ square meter.

Note: Per square meter rough estimate or rule of thumb includes material and labor of building residential structure.

So now lets compute on how much it would cost to built a low end house. So in the low end house, it falls in the livable finish which means just structural features of the house, but a livable one it has rough finishes has rough finish doors and windows serves as enclosure of the house to be desirably livable. From above set values, we set to calculate a 40 square meter low end house. So we will get the product of 40 square meter and Php 15,000. The answer would be Php 600,000.

Now you could visualize how much would your rental can be? You can build a low end house in just Php 600,000? and the floor area maybe higher than your existing rented apartments or condo’s right now. It would have no furnishings yet but you can call it a home of your own.

Disclaimer: Calculated estimated fees, don’t apply in all locations. In this topic estimated example we are specifically referring Cebu City area, other places than Cebu may vary rental prices. We only give range prices to give you ideas on how much it could be as estimate for future references.

Source: Image

Young Urban Couple House Plan



This inspirational design could make you visualize or realize things that you think would not be possible but they actually did it. A modern design of a two(2) storey urban house of 190 square meters with a pool and a patio nursery. The house is for a youthful family and is tweaked for urban way of life. The spatial association of the ground floor is ruled by an open lounge, which is associated with kitchen and lounge area. They share a delightful chimney, which has a tasteful and practical part. The augmentation is found a study room and restroom, and also stockpiling and engine compartment with access to the carport for two autos.

 

The upper floor of the house is saved for rest and rest. On the floor by the open corridor, which serves as a kids’ play area, there are three extensive rooms, two bathrooms and capacity. All rooms have a porch, and the biggest, committed for the guardians, is connected with a can and additional space for garments. The outside of the house is described by current configuration and geometrical structures. The exterior is somewhat secured with boards of wood, which fits consummately with the patio nursery. In the greenhouse is found an extensive swimming pool. Your design would share a huge significance to your daily lifestyle. Design yours now!

Home Plan Ideas that are Under 50 Sq. M.



Here’s low budgeted condo ideas to your home yet very cost efficient and very funtional. If you have constrains to your budget. You’ll start thinking of new ways how to reduce or cost cut your make over or expenses to your new or existing condo’s.  Having little condo implies having extraordinary feeling of masterminding the inside so everything can be utilitarian for you. The space is constrained however within dividers can be orchestrated by your desire.

 

Arranging the rooms in such little space should be all together with the necessities and circumstances of the precise loft. Windows, shower and kitchen channels are altered yet everything else can be orchestrated. The featured image of this post is a sample illustration that can give you awesome thoughts. Make over your condo’s now! Call us for more support.

Source: Architectural Composer