If a Company Uses a Cost-Plus Approach to Pricing, It

question 83

Multiple Choice

If a company uses a cost-plus approach to pricing, it will find:

• A) there are several different definitions of cost and the higher the cost, the higher the markup percentage.
• B) there are several different definitions of cost and the higher the cost, the lower the markup percentage.
• C) there is one definition of cost, and there is no relationship between cost and the markup percentage used.
• D) there is one definition of cost, and there is no markup percentage with the cost-plus approach.
• E) it is in violation of generally accepted accounting principles (GAAP).

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Definitions:

Manufacturing Overhead

The indirect costs associated with the production process, including utilities, rent, and maintenance expenses of manufacturing facilities.

Cost of Goods Manufactured

The total cost incurred by a company to produce goods in a specific period, including materials, labor, and overhead costs.

Finished Goods Inventory

Represents the total cost of manufactured products that are completed but not yet sold.

Gross Margin

The difference between sales revenue and the cost of goods sold, representing the profit margin before overhead expenses.