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Multiple Choice
In cost-plus pricing, what is added to the cost to determine the selling price?
A
A dividend
B
A markup
C
A discount
D
A depreciation expense
Verified step by step guidance
1
Understand the concept of cost-plus pricing: Cost-plus pricing is a pricing strategy where the selling price is determined by adding a specific amount (markup) to the cost of producing or purchasing a product or service.
Identify the components involved in cost-plus pricing: The two main components are the cost (which includes production costs, material costs, labor costs, etc.) and the markup (an additional amount added to cover profit and other expenses).
Clarify the term 'markup': A markup is the percentage or fixed amount added to the cost to ensure profitability. It is not a dividend, discount, or depreciation expense, as these terms refer to other financial concepts.
Relate the markup to the selling price: The selling price is calculated using the formula: . This ensures the business covers its costs and earns a profit.
Conclude that in cost-plus pricing, the correct answer is 'A markup,' as it is the component added to the cost to determine the selling price.