How does cost-based pricing work?
A) It determines price by adding a fixed margin to the per-unit cost of the product.
B) It determines the percentage of cost of the raw materials of the product and adds it to the product's price to get the selling price.
C) It puts the highest profit margins on the most expensive items.
D) It starts by determining what price consumers would be willing to pay then marketers subtract their desired margin.

Question

Quizplus · Accepted Answer

Cost-based pricing works by determining the per-unit cost of the product and adding a fixed margin to it. This ensures that the price covers the cost of producing the product and provides a profit for the seller. Option B is incorrect as it only considers the raw material cost and ignores other costs like labor, overhead, and administrative expenses. Option C is incorrect as it does not consider consumer demand and market competition. Option D is incorrect as it starts with the consumer's willingness to pay and then sets the margin, which can result in a price that does not cover the cost of producing the product.

How Does Cost-Based Pricing Work