Question

"Lovely Skin is establishing a pricing strategy for a new moisturizer. The total cost to produce each unit is $3.50. The company has decided to add a $1.50 markup, so the unit price to distributors will be $5. Lovely Skin is using a ________ approach to price the new moisturizer."

Answer 1

Answer: cost plus approach

                                   

Explanation:  In simple words, it refers to a pricing strategy under which the producing firm adds up a predetermined specific margin to the total cost to compute the selling price.

This approach is considered to be less troubling as it is easy to ascertain the selling price and also it makes accounts recording  and book keeping more effective and simple.

Usually such method is used for Procrustes that are sold to the final customers in single piece and not in a batch for example - a soap, a chocolate etc. other commodities such as computer parts etc are generally not priced according to this strategy.