The concept of Fair-pricing in Cost Management Accounting is a concept that truly helps entrepreneurs reevaluate strategies, and business viability and analyze business problems.
Using the Lunch Box case study of either knowing your cost or losing it all speaks to the many ills that befall any business that starts off on the wrong footing.
Mrs. Gbugbemi after six whole years realizes that she was yet to record a profit. The case study also states that she requested for her accountant to put together old cost records, which makes me ask what really was the job of the accounting team for the past six years and what kind of business structural operations she had run for those years.
The concept of fair pricing can only be discussed and is only fair because entrepreneurs have either zero knowledge of how to manage and scale a sustainable business or entrepreneurs are trying to be greedy over business outputs (profits). A businesswoman or an entrepreneur is expected to understand at most the basics of accounting which in it teaches your bookkeeping, inventory management, assets, and liabilities . In accounting, you also understand that the selling price of an item is the cost of goods plus profit margin and in cost, price includes operational cost/overheads cost used in making bringing it to its finished state. In accounting, you also note that your personal funds are different from your business funds.
Mrs. Gbugbemi started off on the wrong note and by the time she was ready to make it right, competition and inflation had caught up with her and played the smart one for her and her business.
Fair pricing in its real sense is a key factor to scaling profitability but not an entire anti-dote to it. When you price your goods fairly putting all parameters to ensure that the business is profitable, fair pricing on the long run will increase your volume of sales, bring in more customers, increase inventory and asset base and most importantly drive profit up.
Another case will be the inflation that happened in the year 2022 based on the pandemic (Covid 19) that hit the world. The situation was hugely driven by scarcity which meant that people who could even open for business were having to manage an increase of over 50% in operational and overhead costs which is justifiable and fair. Hence, in my country (Nigeria) we had to purchase things (if we are lucky to find them) at a premium just to manage while praying the pandemic goes away.
For the Lunchbox case, I would recommend that the CEO clicks the restart button of her enterprise, start afresh, seek business management skills (Maybe enroll to attend the MBA program at LBS), seek a fresh team who can see her 10-year vision plan and is ready to daily look at the numbers and work to achieve the vision, re-strategize, test the market afresh and seek new ways to deliver her service profitably.
Fair pricing is possible and sustainable but will only be attainable when people/managers and societies do business with good business management skills and ethical standards.
Thank you.
#MEMBA11 #BABYBLOGGERHASEVLOVED.
