ITPEC FE Subject A April 2025 Question 51

Cost plus a fixed margin — cost-plus pricing builds the price up from the manufacturing or purchasing cost.

Under cost-plus pricing the company calculates the unit cost (manufacturing cost for a maker, purchasing cost for a retailer) and adds a set margin or markup, for example cost × 1.3. The price follows from internal cost data, not from competitors or customers.

Answer (b)

Why not others:

• •(a) — setting the price by reference to the industry average and competitors' prices is competition-oriented (going-rate) pricing
• •(c) — choosing a price that yields a target profit at a planned sales volume is target-return pricing, based on break-even thinking
• •(d) — researching what quality and price customers will accept is demand-oriented (perceived-value) pricing

Key rule: Pricing methods are named by their starting point: cost (cost-plus), competitors (going-rate), target profit (target-return), or customers (perceived value).

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