What strategy applies a target markup percentage to each product?

What strategy applies a target markup percentage to each product?

• A. Cost plus markup
• B. Dynamic pricing
• C. Loss leader pricing
• D. Target costing

Answer: (A)

The strategy that applies a target markup percentage to each product is known as cost plus markup. This approach involves determining the total cost of producing a product and then adding a specific percentage as profit on top of that cost. By using this method, businesses can ensure that they cover all costs associated with the product while achieving their desired profit margin. This straightforward calculation allows for easier pricing decisions and helps maintain consistent profit levels across various products. In contrast, dynamic pricing involves adjusting prices based on market demand and competition, rather than strictly adhering to a set markup. Loss leader pricing focuses on setting a price below cost to attract customers, intending to boost sales of other higher-margin items. Target costing revolves around determining the desired selling price based on market conditions and then working backward to reduce costs to meet that price, which is a fundamentally different approach from applying a markup on cost.

The strategy that applies a target markup percentage to each product is known as cost plus markup. This approach involves determining the total cost of producing a product and then adding a specific percentage as profit on top of that cost. By using this method, businesses can ensure that they cover all costs associated with the product while achieving their desired profit margin. This straightforward calculation allows for easier pricing decisions and helps maintain consistent profit levels across various products.

In contrast, dynamic pricing involves adjusting prices based on market demand and competition, rather than strictly adhering to a set markup. Loss leader pricing focuses on setting a price below cost to attract customers, intending to boost sales of other higher-margin items. Target costing revolves around determining the desired selling price based on market conditions and then working backward to reduce costs to meet that price, which is a fundamentally different approach from applying a markup on cost.