What is cost-plus pricing?

• A. Calculating prices by adding a fixed percentage to the total cost of the product.
• B. Pricing products strictly based on the cost to produce.
• C. Selling products below cost to attract customers.
• D. Setting prices based on competitor’s price.

Answer: (A)

Cost-plus pricing means setting a selling price by taking the total cost of the product (materials, labor, and allocated overhead) and adding a markup, usually expressed as a fixed percentage, to determine the final price. This approach ensures costs are covered and a target profit margin is achieved, and it’s simple to apply and budget for. It differs from pricing strictly based on production cost, which may omit overhead or profit, and from pricing that relies on competitors or from selling below cost to attract customers.