Which pricing method is used when goods are sold at the cost of production plus a profit mark-up?

Which pricing method is used when goods are sold at the cost of production plus a profit mark-up?

• A. Skimming price
• B. The marketing plan
• C. Cost plus pricing
• D. The marketing mix

Answer: (C)

Cost plus pricing is the method where the selling price is set by adding a profit margin to the cost of producing the goods. This means you first calculate all the costs involved in making the product—materials, labor, and a share of overhead—and then add a predetermined markup to reach the final price. It’s a straightforward way to ensure costs are covered and a desired profit is earned, especially when costs are stable or when dealing with bespoke or contracted work where price transparency and simplicity matter. For example, if the total cost per unit is 50 and you want a 20% markup, the price would be 60. This approach is less about what customers will pay or how competitors price, and more about guaranteeing a specific return based on known costs. The other options aren’t pricing methods in the same way. Skimming price involves charging a high initial price to recover development costs quickly and then lowering it over time, which is geared toward market entry and demand testing rather than simply adding a fixed profit to cost. The marketing plan and the marketing mix refer to broader strategic concepts—overall planning and the combination of product, price, place, and promotion—not a specific way to set prices.

Cost plus pricing is the method where the selling price is set by adding a profit margin to the cost of producing the goods. This means you first calculate all the costs involved in making the product—materials, labor, and a share of overhead—and then add a predetermined markup to reach the final price. It’s a straightforward way to ensure costs are covered and a desired profit is earned, especially when costs are stable or when dealing with bespoke or contracted work where price transparency and simplicity matter.

For example, if the total cost per unit is 50 and you want a 20% markup, the price would be 60. This approach is less about what customers will pay or how competitors price, and more about guaranteeing a specific return based on known costs.

The other options aren’t pricing methods in the same way. Skimming price involves charging a high initial price to recover development costs quickly and then lowering it over time, which is geared toward market entry and demand testing rather than simply adding a fixed profit to cost. The marketing plan and the marketing mix refer to broader strategic concepts—overall planning and the combination of product, price, place, and promotion—not a specific way to set prices.