Asked by Erika Nations on Jul 06, 2024
Verified
In using the variable cost concept of applying the cost-plus approach to product pricing, fixed manufacturing costs and both fixed and variable selling and administrative expenses must be covered by the markup.
Variable Cost Concept
A pricing strategy where the selling price covers the variable costs per unit, plus a portion of the fixed costs.
Cost-Plus Approach
A pricing strategy where a fixed percentage or a fixed amount is added to the cost of the product to determine its selling price.
Fixed Manufacturing Costs
Costs that do not change with the level of production, such as rent, depreciation, and insurance.
- Recognize the factors influencing pricing decisions, including cost-plus and variable cost concepts.
- Differentiate between total, variable, and fixed costs in the context of product pricing and cost management.
Verified Answer
MF
Morgan FowlerJul 09, 2024
Final Answer :
False
Explanation :
In the variable cost concept of cost-plus pricing, only variable costs are considered in setting the price, and the markup is added to cover fixed costs and desired profit, not including fixed manufacturing costs and fixed selling and administrative expenses in the cost base.
Learning Objectives
- Recognize the factors influencing pricing decisions, including cost-plus and variable cost concepts.
- Differentiate between total, variable, and fixed costs in the context of product pricing and cost management.