Percentage vs Fixed Cost

Discussion in 'Growing and Managing a Business' started by Bggrscntbchoosrs, Jan 27, 2015.

  1. Bggrscntbchoosrs

    Bggrscntbchoosrs
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    This may seem like a silly question... But I'm doing research on why a fixed cost is better than a percentage. For example, lets say an Apartment complex is charging rent for a 1 bedroom at a fixed rate. Why would it be a bad idea to charge a percentage of the applicants income instead? Or good idea? What about daycare services? Or a particular tangible product? Thanks for your input!
     
  2. Joseph.Shivell

    Joseph.Shivell
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    When determining the price to charge a customer for a product or service, a large part of that price is determined by the cost to produce the product, or provide the service. In your example, apartments are rented at a fixed rate based on the cost of the services provided with the apartment, which may or may not include utilities, but can include recreation areas or rooms, one or more swimming pools, maintenance services, a computer room or business center, and other services. In some cases, a state or federal government can provide rental assistance, where the renter pays a percentage of their income and the government pays the rest directly to the leasing company or apartment owner. Day care services can also be either paid for or subsidized in the same way. There are also government programs to help pay for food. These, however, are necessary services needed in order for a person or family to survive. The subsidies provided are based on ability to pay. And, if someone has more money, why should they be charged more for the same services? Other services are not necessary, and therefore it would not be reasonable for them to be subsidized, and they are provided at a fixed rate.
    As far as products, the price for them also depends largely on the cost to the manufacturer and seller. These costs are fixed, and cannot be changed. because products are mass-produced a percentage of the cost to produce a certain number of items is charged to each item by the product manufacturer, but the total cost must be recouped by the manufacturer. For example if it costs $100 to manufacture 20 pieces of an item, the manufacturer only has to make a percentage of the $100 for each item sold, but must make at least $5 per item. Part of the final price to the consumer would be a percentage of the cost, but it would still be a fixed price for everyone who buys the item.
     

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