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Hello, I found two opposing statements and I would like to ask for advice (question 19.7 and 21.7 from Practice and Revision Kit BPP). One of them says that a sentence “Charging prices at full cost plus a fixed margin for profit will ensure that the business will make a profit in each period” is not true. Another says that a sentence “A price in excess of full cost per unit will ensure that a company will cover all its costs and make a profit” is true. Please advice. Thank you!
It would seem that you are using an old edition of the Revision Kit. The current edition does not have questions 19.7 and 21.7.
I do suggest that you buy a current edition because of the change in the format of the exam.Charging prices at full cost plus a margin will ensure that the company makes a profit, provided that the level of production is as budgeted (because of the absorption of the fixed production overheads). This is explained in my free lectures on pricing.
Without seeing the entire questions to which you refer, I cannot say more – a lot depends on the exact wording of the question.
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