Cost-plus pricing is a pricing strategy that involves adding a markup to the total cost of producing a product or service to determine its selling price.
In other words, the price of the product or service is set by adding a percentage or fixed amount to the cost of producing it.
The formula for cost-plus pricing is:
Selling price = Cost of production + Markup
The cost of production includes all the direct and indirect costs incurred by the company to produce the product or service, including the cost of materials, labor, overhead, and other expenses. The markup is the additional amount that the company adds to the cost of production to cover its profit margin.
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Advantages of cost of goods sold include
- It is a relatively simple pricing strategy to implement, as it only requires the company to calculate its costs and apply a markup.
- it can ensure that the company covers all its costs and generates a profit on each sale.
- it can provide a clear and transparent pricing structure that customers can easily understand.
