What is the term for the price policy that adds a specific markup to cost to determine selling price?

• A. Product life cycle
• B. Pricing strategy
• C. Sponsorship
• D. Cost plus pricing

Answer: (D)

This question is about a pricing method where the selling price is determined by adding a fixed markup to the cost of making the product. You start with the total cost (materials, labour, overheads) and apply a markup—either a percentage or a fixed amount—to cover overheads and secure a desired profit. The resulting selling price ensures costs are covered and a target return is built in, and it’s straightforward to apply, especially when costs are clear and stable.

This approach is different from broader ideas like a pricing strategy (the overall plan for setting prices), the product life cycle (the stages a product goes through), or sponsorship (a funding/partnership activity). Cost-plus pricing is a specific method used to set price, not the broader concepts. It’s simple and predictable, but it can ignore market demand and competitor prices, which is a potential downside.