[MUSIC] What I would like to do is now come back to our example of the cost based pricing video when we looked at calculating the cost based pricing approach using the printer example. I've already set up again the very same example. As you might recall, we had three different cost items, supplies, the production cost and obviously the marketing expenditure. As we pointed out in this example as well, the type of cost is very different across the three different cost items. Supplies is very much a variable cost so with an increase in the units, I obviously increase as well, in a linear fashion, my overall cost. We see, however, that the production and marketing expense is a fixed cost. So this is a fixed cost item and doesn't really change with the number of units I'm producing or the number of units I'm selling. As you might recall as well, we looked at two different volumes. First the 100,000 unit volume and second the 50,000 unit volume. What I would like to do is really briefly walk through the calculations we have done implicitly in this video. If we look at the supplies which is the first row item, independent whether we sell 100,000 units or 50,000 units, the cost per unit is always going to stay the same. So in this particular case the $28 per unit of production doesn't change. This is obviously very different if we actually look at the second cost item. Here we have the fixed cost of $3 million. If we go to the example or the row that is highlighting that we are selling 100,000 units. We obviously would see that the cost per unit would be $30. This is easily calculated taking the $3 million divided by the 100,000 units which results in $30 per unit. We can do exactly the same as well for the last cost item which is the marketing expense. Again we take the $2 million divided by 100,000 units which would be a cost of $20 per unit. We obviously see already, as we calculated in the previous example, that the total resulting cost will be $78. Let's look at the second example again and here we're going to see the differences. If we now still have the fixed cost of production of $3 million but now we're only going to divide this by 50,000 units, we'll obviously see that the resulting expense per unit is going to be a total of $60. Let's repeat the very same exercise as well for all marketing expense. $2 million divided by the 50,000 units is going to be a unit cost of $40. What we can now see is we can again calculate what's going to be the total unit cost for an output of 50,000 units. Where the $40, $60 which is $100 plus the $28 is $128. So with this very simple calculation, we have already seen that depending on the output, I'm estimating my cost per unit is going to be very different. It might be either $78, in the case of 100,000 units or $128 in the case of 50,000 units. As a consequence the resulting cost based price is going to be very different as well, as we have seen in the previous example. [MUSIC]