Types of prices

Direct prices square measure those prices that cann be directly attributed to a product or merchandise, or to 1 supply of sales revenue, or one business unit or operation of the business. associate example of an on the spot price would be the price of tires on a brand new automobile.

Indirect prices square measure terribly totally different and cannot be hooked up to any specific product, unit or activity. the price of labor or edges for associate auto maker is definitely a price, however it cannot be hooked up to anyone vehicle. every business has got to devise a way of allocating indirect prices to totally different product, sources of sales revenue, business units, etc. Most allocation strategies square measure but excellent, and usually find yourself being absolute to 1 degree or another. Business managers and accounts must always keep a watch on the allocation strategies used for indirect prices and take the price figures created by these strategies with a grain of salt.

Fixed prices square measure those prices that keep a similar over a comparatively broad vary of sales volume or production output. they are like associate albatross round the neck of business and a corporation should sell its product at a high enough profit to a minimum of reach.

Variable prices will increase and reduce in proportion to changes in sales or production level. Variable prices vary proportionately with changes in production/

Relevant prices square measure primarily future prices that would be incurred, betting on what strategic course a business takes. If associate auto maker decides to extend production, however the price of tires goes up, than that price must be taken into thought.

Irrelevant prices square measure those who ought to be forgotten once selecting a future course of action. they are prices that would cause you to form a wrong call. Whereas relevant prices square measure future prices, tangential prices square measure those prices that were incurred within the past. The money's gone.