To determine a product selling price based on the total cost method, management should include:
- Total production and nonproduction costs plus a markup. (Answer)
- Total production and nonproduction costs only.
- Total production costs plus a markup.
- Total nonproduction costs plus a markup.
- Only a markup.
- Total production and nonproduction costs plus a markup
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- The total cost of a product is made up all production costs and non-production costs
- Therefore, when pricing based on total costs, it should include the total production and nonproduction costs plus a markup
- The markup represents the profit margin
- Non production costs include administration, selling and distribution costs
- Production costs include the cost of Direct material, direct labor and factory overheads
Meaning of Cost Based Pricing
Cost-based pricing refers to a pricing technique based on manufacturing cost, production cost and distribution of a commodity. Basically, the value of a commodity is determined by summing a proportion of the manufacturing expenses to the selling value to generate earnings. Firms typically implement a cost-based pricing technique to generate a particular proportion more than the entire production and manufacturing expenditure. It is a well known pricing technique among manufacturing institutions.
How to calculate selling price of a product
We compute the selling price of a commodity by dividing the total earned revenue from a service or a product and the resulting figure is then divided by the number of services or products sold.