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the following statements have been made about cost plus pricing.
1. a price in excess of full cost per unit will ensure that a company will cover all its costs and make a profit
2. cost plus pricing is an appropriate pricing strategy when jobs are carried out to customer specificationswhich of the above statement is true?
Answer Scheme : 2I understand why 2 is true, but isnt 1 also true? when we calculate the full cost price, didnt we take the full cost (material, labour, variable overhead, fixed overhead) and add our profit mark up? for example full cost is $100 and profit mark up 25%, and that makes it $125 selling price and $25 profit, doesnt that cover all its costs and also make a profit at the same time?
Yes, statement 1 is true in my opinion
It could be a mistakeCost plus pricing involves calculating the full cost per unit by considering all the costs, including material, labor, variable overhead, and fixed overhead, and then adding a profit markup. So, when a company sets a price in excess of the full cost per unit, it ensures that it covers all its costs and makes a profit.
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