When Estimated Costs Are Used in Applying the Cost-Plus Approach

question 115

True/False

When estimated costs are used in applying the cost-plus approach to product pricing, the estimates should be based upon normal levels of performance.

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Definitions:

CM Ratio

Contribution margin ratio, showing the portion of sales revenue that is not consumed by variable costs and contributes to covering fixed costs.

Fixed Expenses

Costs that do not fluctuate with the level of production or sales, such as rent, salaries, and insurance premiums.

Units

A measure of quantity for items that are being produced, sold, or inventoried by a company.

Target Profit

The profit a company aims to achieve for a specific period.