Cost Plus Pricing: Videos & Practice Problems

Prisca’s Print Shop has solved that the unit cost of one poster print in job #204 is \$11.80.
Prisca wants to implement a 20% markup on their posters in job #204. How much will the posters cost the consumer?

• A. \$11.80 per poster
• B. \$13.87 per poster
• C. \$14.11 per poster
• D. \$14.16 per poster

Answer: (D)

Here's what students ask on this topic:

What is cost plus pricing and how is it calculated?

Cost plus pricing is a pricing strategy where the selling price of a product is determined by adding a markup to the total cost per unit of producing the product. The markup represents the difference between the cost to make the product and the price charged to the customer. To calculate the markup amount, you multiply the total cost per unit by the markup percentage: $\mathrm{Markup\; amount}=\mathrm{Total\; cost\; per\; unit}\times \mathrm{Markup\; percentage}$. Then, the selling price is found by adding the markup amount to the total cost per unit: $\mathrm{Selling\; price}=\mathrm{Total\; cost\; per\; unit}+\mathrm{Markup\; amount}$. This method is common because it directly links the selling price to the cost of production, making it straightforward to apply and understand.

How do you apply a markup percentage in cost plus pricing?

To apply a markup percentage in cost plus pricing, you first determine the total cost per unit of the product. Then, multiply this cost by the markup percentage to find the markup amount. For example, if a product costs \$1,200 to make and you apply a 30% markup, calculate the markup as $1200\times 0.30=360$. The selling price is then the sum of the cost and the markup: $1200+360=1560$. This process ensures the final price covers costs and includes a profit margin based on the chosen markup percentage.

What is the difference between markup amount and selling price in cost plus pricing?

In cost plus pricing, the markup amount is the additional charge added to the product's cost to determine the selling price. It is calculated by multiplying the total cost per unit by the markup percentage: $\mathrm{Markup\; amount}=\mathrm{Total\; cost\; per\; unit}\times \mathrm{Markup\; percentage}$. The selling price is the total amount the customer pays, which includes both the cost and the markup: $\mathrm{Selling\; price}=\mathrm{Total\; cost\; per\; unit}+\mathrm{Markup\; amount}$. Understanding this distinction is important because some questions or calculations may ask specifically for the markup amount, while others require the final selling price.

Why is cost plus pricing considered a common pricing method?

Cost plus pricing is common because it is simple and directly ties the selling price to the product's cost, making it easy to calculate and understand. By starting with the total cost per unit and adding a predetermined markup percentage, businesses ensure they cover all costs and earn a profit margin. This method is especially useful in managerial accounting courses and real-world applications because it provides a clear, straightforward way to set prices without complex market analysis. It also helps maintain consistent profit margins across products.

How do you distinguish between markup amount and total price in cost plus pricing problems?

When solving cost plus pricing problems, it is crucial to identify whether the question asks for the markup amount or the total selling price. The markup amount is calculated by multiplying the total cost per unit by the markup percentage: $\mathrm{Markup\; amount}=\mathrm{Total\; cost\; per\; unit}\times \mathrm{Markup\; percentage}$. The total selling price is the sum of the cost and the markup: $\mathrm{Selling\; price}=\mathrm{Total\; cost\; per\; unit}+\mathrm{Markup\; amount}$. Carefully reading the question ensures you provide the correct value, as some problems may only want the markup, while others require the final price charged to customers.