Cost plus pricing definition, formula and example





Cost plus pricing Definition:
One method used by businesses to determine how to price goods and services. This type of pricing includes the variable costs associated with the goods, as well as a portion of the fixed costs of operating the business.

Example,
if a business sells a microwave that has a variable cost of $15.00, a fixed cost allocation of $5, and a desired markup of 30%, the price of the microwave using this method would be ($15 + $5)*(1+0.30), or $26.

Cost plus pricing Formula:
It is calculated as (average variable cost + % allocation of fixed costs)*(1+ markup %).

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