UGC NET COMMERCE December 2018 Q42 Multiple Choice Questions

Option : D
Explanation : Cost-Plus Pricing: With cost-plus pricing, the seller’s costs are determined (usually during a project or after a project is completed), and then a specified dollar, amount or percentage of the cost is added to the seller’s cost to establish the price. Costplus pricing and competition-based pricing are in fact the most common bases for pricing services. When production cost are difficult to predict, cost-plus pricing is appropriate. Projects involving custom-made equipment and commercial construction are often priced using this technique. The government frequently uses such cost-based pricing in granting defense contracts. One pitfall for the buyer is that the seller may increase costs to establish a larger profit base. Furthermore, some costs, such as overhead, may be difficult to determine. In periods of rapid inflation, cost-plus pricing is popular, especially when the producer must use raw materials that are fluctuating in price. In industries in which cost-plus pricing is common and sellers have similar costs, price competition may not be especially intense.