Future Business Leaders of America (FBLA) Hospitality Management Practice Test

In terms of pricing, what is a key component of cost-plus pricing?

1. Market demand analysis

2. Calculating total costs and adding profit

3. Competitive price matching

4. Discount strategies

The correct answer is: Calculating total costs and adding profit

Cost-plus pricing is a method where a business determines the total cost of producing a product or providing a service and then adds a specific markup percentage to ensure a profit margin. This approach is straightforward, as it involves adding fixed costs (such as materials, labor, and overhead) to variable costs associated with service delivery, and then incorporating a desired profit amount. By focusing on calculating total costs and adding profit, businesses can ensure they cover their expenses while also generating revenue. This method is particularly beneficial for industries with stable cost structures and predictable pricing scenarios, making it easier for managers to make informed pricing decisions based on their costs instead of fluctuating market conditions. The other options—market demand analysis, competitive price matching, and discount strategies—are important pricing strategies but do not define the core element of cost-plus pricing. Market demand analysis focuses on consumer behavior and willingness to pay, competitive price matching seeks to align prices with competitors, and discount strategies involve lowering prices to attract customers, none of which are fundamental to the cost-plus pricing approach.