If a company uses a cost-plus approach to pricing, it will find:
A) there are several different definitions of cost and the higher the cost, the higher the markup percentage.
B) there are several different definitions of cost and the higher the cost, the lower the markup percentage.
C) there is one definition of cost, and there is no relationship between cost and the markup percentage used.
D) there is one definition of cost, and there is no markup percentage with the cost-plus approach.
E) it is in violation of generally accepted accounting principles (GAAP).

Question

Quizplus · Accepted Answer

In a cost-plus pricing approach, a company calculates its costs to produce a product and then adds a markup percentage to determine the selling price. As the cost increases, the markup percentage often decreases to keep the final price competitive in the market. This approach recognizes that there are various ways to define costs (e.g., variable costs, fixed costs, full costs) and adjusts the markup based on the total cost to ensure profitability without pricing out of the market.

If a Company Uses a Cost-Plus Approach to Pricing, It