Why is cost-plus pricing criticized?
A)It includes selling and administrative costs in determining the product cost.
B)It does not consider the fixed manufacturing overhead in determining the product cost.
C)It is inherently circular for manufacturing firms.
D)It requires a high level of technical expertise to price products using this method.

Question

Quizplus · Accepted Answer

Cost-plus pricing is criticized for being circular because it starts with the cost of producing a product and then adds a markup to determine the selling price, rather than beginning with the price that consumers are willing to pay and working backwards to determine costs. This can result in a situation where profits are maximized by increasing production, even if the market demand for the product has decreased.

Why Is Cost-Plus Pricing Criticized