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. It is calculated as (average variable cost + % allocation of fixed costs)*(1+ markup %). For 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.

Use cost-plus pricing in a sentence

Cost-plus pricing uses fixed and variable costs along with a markup percentage to determine the selling price of an item.

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