A product costing method where a markup is added to the cost base to establish a target price is termed __________?
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Answer: C. cost plus pricing
Explanation
Cost plus pricing is a method where a predetermined markup percentage is added to a specific cost base. This calculated total establishes the final selling price charged to customers for the product or service. It ensures all production and acquisition costs are covered while generating a targeted profit margin for the firm. The cost base in cost plus pricing can include direct materials, direct labor, and allocated manufacturing overhead costs. This pricing approach is widely used when product customization makes market based pricing difficult to establish. While simple to calculate, cost plus pricing often ignores competitive market demand and customer willingness to pay.
Market based approach determines prices based on competitor pricing and customer demand rather than adding a markup to internal costs. Cost incurrence pricing is a non standard term that does not accurately describe markup pricing methodologies. Locked in cost pricing refers to design phase cost commitments rather than the ongoing markup pricing calculation method.
- Subject
- Accounting and Finance
- Category
- Accounting
- Topic
- —
- Difficulty
- medium
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