Product Cost Distortion and Pricing

question 93

Essay

Product cost distortion and pricing
Assume a firm relies heavily on cost-plus pricing to arrive at selling prices for its many products.
i. Define product cost distortion.
ii. Can product cost distortion ever be eliminated?
iii. Are there certain manufacturing situations in which product cost distortion is more likely? Explain.
iv. How can cost-plus pricing be improved in the situation described at the start of this question?

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Definitions:

Megalith

Greek, “great stone.” A large, roughly hewn stone used in the construction of monumental prehistoric structures.

Massive Shaped Stone

Large stones that have been shaped and used in the construction of ancient structures and monuments, showcasing sophisticated engineering techniques.

Volcanic Rock

Rock formed from magma erupted from a volcano or solidified lava on the earth's surface.

Continent

One of the very large landmasses on Earth, generally identified by convention rather than any strict criteria, with seven commonly recognized: Africa, Antarctica, Asia, Europe, North America, Australia (Oceania), and South America.