volumes are added to estimated costs. However, profit figures are note calculated based on the cost of labour and material required to provide the product. Instead, profit is calculated based on the financial investment required to provide the product, the return needed to attract that investment, and estimated sales volume. Procedure: Follow these steps to determine price using rate -of -return pricing approach. • Determine desired rate of return on investment; • Estimate investment required; • Estimate level of sales; • Estimate unit cost at the projected sales level; • Calculate desired unit profit; • Calculate unit-selling price(estimated cost +desired profit) Example: Price the following product using rate of return pricing approach. Given: Desired rate of return Estimated investment required Estimated sales Estimated unit cost Calculate: A. Desired profit volume. B. Profit per unit. -20% -Birr 600,000 =5,000 units -Birr 80.
