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Dear John,
How are you?
I hope you are doing well,
Regarding cost plus pricing the selling price is calculated by estimating the cost per unit of a product and adding required mark-up.
My question is does the cost per unit mentioned above include all costs I mean manufacturing and non manufacturing costs or what?
2nd question,
In case of a company just produce 2 products does marginal cost plus is applicable in this case my point is avoiding cross-subsidization?1. It could be either. It is more likely to be the manufacturing cost plus mark-up, but that depends on what is written in the question.
2. Marginal cost plus avoids the problem you mention but then there is the problem of deciding what % to use to ensure that fixed costs are covered.
If using full cost plus, then it necessitates absorbing the fixed costs ‘fairly’ between the products using ABC as I explain in my free lectures on ABC.
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