Which pricing method sets price by adding a profit margin to the full cost?

• A. Value-based pricing
• B. Marginal cost pricing
• C. Full cost pricing
• D. Competition-based pricing

Answer: (C)

Setting price by adding a profit margin to the full cost means you first calculate the total cost of producing the product (fixed plus variable costs) and then add a markup to secure a target profit. This is cost-plus pricing, designed to ensure all costs are covered and provide a predictable profit, using internal cost structures as the basis.

Value-based pricing, by contrast, sets price according to what customers perceive the product is worth, not what it costs to make. Marginal cost pricing bases price on variable costs (the incremental cost of producing one more unit), which can ignore fixed costs and affect overall profitability. Competition-based pricing chooses a price to align with rivals’ prices rather than the firm’s own cost structure.

Therefore, the method described is full cost pricing.