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

What pricing strategy involves calculating all costs and adding a desired profit margin?

1. Market penetration pricing

2. Cost-plus pricing

3. Dynamic pricing

4. Competition-based pricing

The correct answer is: Cost-plus pricing

The pricing strategy that involves calculating all costs and then adding a desired profit margin is known as cost-plus pricing. This method begins with a detailed assessment of all associated costs involved in producing a product or service—these may include direct costs like materials and labor, as well as indirect costs such as overhead and operational expenses. Once the total costs are established, a predetermined profit margin is added to ensure profitability. Cost-plus pricing provides a straightforward approach that can be particularly beneficial for businesses that want to ensure they cover their costs while also achieving a specific level of profit. This strategy is commonly used in industries where costs are relatively stable and predictable. Using this strategy allows businesses to create easily understandable pricing structures that can be communicated clearly to customers. Additionally, it helps in pricing decisions by ensuring that all operational costs are taken into account, which is critical for sustaining long-term business viability.