Cost-plus pricing adds an amount to
a. The cost of the product or service to cover operating costs and contribute to its profit.
b. Variable and fixed costs to cover overhead.
c. The sales price to cover unexpected costs.
d. Contribution margin to cover fixed costs.
Answer: a. The cost of the product or service to cover operating costs and contribute to its profit.
The cost-plus pricing method involves adding a profit margin to that total cost of either producing or offering the product or a service. The total imprint consists of indirect costs for example: that of wages, materials, and indirect costs.
In order to include the cost of all the operations involved in selling a particular product, the selling price comprises of the extra predetermined values such as a fixed amount or a particular percentage to the total cost which shows that the company is meeting the expectations of the profit margin. This pricing strategy is implemented by firms involved in industries that have high fixed costs and when it is difficult to forecast consumers’ demand and costs.