To determine a product selling price based on the total cost method, management should include:

To determine a product selling price based on the total cost method, management should include:

Multiple Choice

• 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

Step-by-step explanation

1. The total cost of a product is made up all production costs and non-production costs
2. Therefore, when pricing based on total costs, it should include the total production and nonproduction costs plus a markup
3. The markup represents the profit margin
4. Non production costs include administration, selling and distribution costs
5. 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.