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The following question is the BPP MCQ. I think BPP has made an error. Help me, Sir.
The following statements have been made about cost plus pricing.
1 ) A weakness of cost-plus pricing is that it fails to recognize the effect of sales price on sales demand.
A price in excess of full cost per unit will ensure that a company will cover all its costs and make a profit.2) A weakness of full cost-plus pricing sis that the bases used for apportionment of overhead costs between products or jobs may be arbitrary or inappropriate.
They say both statement is true. I think no 1’s second sentence is wrong.
I think I can understand why you do not like the second sentence (and it could be written better).
However the basis of it is true. If we are going to make profits then we do need to charge a price that covers all our costs (i.e. in excess of the full cost per unit). It does assume that we will be able to sell them though 🙂
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