Advantages:
1. Easy: This method of pricing is very simple method. It can easily be used for determining the price.
2. Flexible: Any changes in the cost of production or the margin of profit change the price in the same direction. It automatically gets adjusted to the change.
3. Visible profit margin: Profit margin is not to be calculated. It is already fixed. Thus by multiplying the profit per unit with the volume of the product, the total profit can be determined.
4. Increases efficiency: Any upward rise in cost is easily visible. This provides an idea to the entrepreneur to adjust his production for keeping the cost as low as possible.
5. Less calculation: Comparatively less calculations are involved. Which makes the implementation of this method simple.
6. Easy implementations: This method can easily be implemented because of its simplicity to understand and easy calculations.
Disadvantages:
1. Suitable only for single product: A firm involved in production of only one type of product finds it convenient. In case the firm decides about variation, then this method cannot be successfully used.
2. Could neglect the competitive price: In case the sum of cost price and profit is more than the competitive price, then the sale of the product will be low.
3. Consumers’ preference: It is not considered while fixing the price by this method. This method does not provide much scope for selling the product discriminately to different group of customers.
