Commercial Applications
With reference to the 'Cost Plus Pricing', which statement(s) is/are correct?
(1) Selling price of the product must cover full cost.
(2) Selling price must cover full cost and yield a reasonable margin of profit.
(3) Selling price should be high to get more profit.
(4) Selling price should be low, so cost could be covered.
- 1 & 3 are correct
- 2 & 3 are correct
- 1 & 4 are correct
- Only 2 is correct
Answer
Only 2 is correct
Reason — Under Cost Plus Pricing, the selling price is fixed by adding a reasonable margin of profit to the full cost of the product. Hence, the selling price must cover the full cost AND yield a reasonable profit margin (Statement 2). Merely covering cost (Statement 1) or simply setting a high or low price (Statements 3 and 4) is not the cost-plus principle.
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