Q25-12RQ - Horngren'S Financial And Managerial Accounting

Question

What is cost-plus pricing? Who uses it?

Step-by-Step Solution

Answer

Answer

Cost-plus pricing is an approach of setting the target selling prices of products and services, and price-setter business concerns use the same.

Step-by-Step Solution Step 1: Meaning of Price-Setter

Price setter refers to a business that has control over setting the prices of its products and services. In other words, when a business entity is not bound by market conditions to set prices, it is termed as price-setters. 

Step 2: Meaning and usage of cost-plus pricing

Cost-plus pricing is an approach used by business entities to set the prices of their products and services. The prices set under this approach are generally called target selling prices based on the cost-plus desired profit expectations of the company.

Cost-plus pricing approach is used by price-setter business entities.