Which pricing method adds a fixed markup to the production cost?

Which pricing method adds a fixed markup to the production cost?

• A. Skimming price
• B. The marketing concept
• C. Cost plus pricing
• D. The marketing plan

Answer: (C)

Cost-plus pricing adds a fixed markup to the production cost to set the selling price. By starting with the cost per unit and adding a predetermined amount or percentage, you ensure the price covers materials, labour, overhead, and includes a desired profit. For example, if a unit costs 50 and the markup is 20%, the price would be 60. This method is simple and predictable, but it doesn’t take demand or competition into account. It differs from skimming pricing, which starts with a high price to attract early buyers and then drops, and from broader ideas like the marketing concept or a marketing plan, which relate to overall business strategy rather than a specific cost-based pricing rule.

Cost-plus pricing adds a fixed markup to the production cost to set the selling price. By starting with the cost per unit and adding a predetermined amount or percentage, you ensure the price covers materials, labour, overhead, and includes a desired profit. For example, if a unit costs 50 and the markup is 20%, the price would be 60. This method is simple and predictable, but it doesn’t take demand or competition into account. It differs from skimming pricing, which starts with a high price to attract early buyers and then drops, and from broader ideas like the marketing concept or a marketing plan, which relate to overall business strategy rather than a specific cost-based pricing rule.