Holding all other things constant,an increase in variable production costs will affect:
A)the selling price under the absorption costing approach to cost-plus pricing.
B)the profit-maximizing price.
C)both the selling price under the absorption costing approach to cost-plus pricing and the profit-maximizing price.
D)neither the selling price under the absorption costing approach to cost-plus pricing nor the profit-maximizing price.

Question

Quizplus · Accepted Answer

An increase in variable production costs will lead to an increase in total production costs, which will in turn increase the selling price under the absorption costing approach to cost-plus pricing. Additionally, an increase in production costs will also impact the profit-maximizing price as it will lead to a decrease in profit margin. Therefore, both options are affected.

Holding All Other Things Constant,an Increase in Variable Production Costs