Incremental—or Marginal Pricing—and Break-even Sales
CVP analysis shows the effect on profit by discounting price in return for more volume to make up for lost contribution margin dollars. Incremental, or marginal, pricing (incremental pricing, marginal pricing, and contribution margin pricing are interchangeable terms) also involves lowering price to get the sale, but takes break-even sales into account.
Knowing your company’s break-even point and when it is reached can allow management to consider creative pricing strategies and to take on business that otherwise might not seem desirable. Figure 43 illustrates a 9-month Y-T-D (year to date) situation where Ben Hill Manufacturing, Inc., a men’s contract trouser manufacturer, is approaching ...
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