Which term describes adding a fixed margin to the cost to set the selling price?

Which term describes adding a fixed margin to the cost to set the selling price?

• A. Product differentiation
• B. Competitive pricing
• C. Cost-plus pricing
• D. Product portfolio

Answer: (C)

Cost-plus pricing means you set the selling price by adding a fixed margin to the cost of producing or acquiring the item. It’s a cost-based approach: calculate the unit cost (materials, labor, overhead), choose a markup (a percentage or fixed amount) to cover overhead and desired profit, and price the product at cost plus that markup. This ensures every sale contributes the intended profit and provides a simple, predictable way to price when costs are known. It’s less about what customers will pay or what competitors charge, which is why other terms don’t fit: differentiating a product aims to justify higher value through features rather than a fixed cost-based markup, competitive pricing centers on rivals’ prices, and a product portfolio is about the range of products offered rather than how any one price is set.

Cost-plus pricing means you set the selling price by adding a fixed margin to the cost of producing or acquiring the item. It’s a cost-based approach: calculate the unit cost (materials, labor, overhead), choose a markup (a percentage or fixed amount) to cover overhead and desired profit, and price the product at cost plus that markup. This ensures every sale contributes the intended profit and provides a simple, predictable way to price when costs are known. It’s less about what customers will pay or what competitors charge, which is why other terms don’t fit: differentiating a product aims to justify higher value through features rather than a fixed cost-based markup, competitive pricing centers on rivals’ prices, and a product portfolio is about the range of products offered rather than how any one price is set.