Which statement defines full cost pricing?

• A. Price is based on market demand only
• B. Full cost of the product plus profit equals the total price
• C. Price is set to cover only marginal costs
• D. Price is equal to marginal costs plus overhead

Answer: (B)

Full cost pricing prices a product to recover all costs of making it, both variable costs and fixed costs, and then add a profit margin. This approach ensures that every cost the business incurs is covered by the price, not just the incremental or market-driven amounts. By using the full cost as the base, the price includes overhead and other fixed expenses, with a markup to secure a return on the product.

If you only priced by market demand, you’d capture demand signals but might ignore whether all costs are covered. If you priced by marginal costs, you’d cover only the additional cost of producing one more unit, often neglecting fixed costs. And pricing as marginal costs plus overhead isn’t a standard way to ensure all production costs are recovered in the price.

So the defining idea is that the price is set to cover the full cost of the product plus a profit margin.