Cost pricing uses information already obtained while determining the cost break-even level. While accurate, cost pricing does have disadvantages. It is the minimum acceptable level. Again it may have been set without consideration of the owner s salary or wage. Also cost pricing is based on previous costs of supplies, materials, and labor.
Nothing is included that takes future or anticipated costs into account.
Cost pricing also fails to maximize sales or most importantly profit. Because it requires the most detailed record keeping, cost pricing is the most difficult to do. Although perhaps not selected as the method, all pricing decisions are controlled to some degree by the competition. The advantage to competitive pricing is the control of a major factor in obtaining and retaining customers. The disadvantages of this method include knowing who the competition is.