Cost Plus Pricing is also called Mark-Up Pricing


Under cost-plus pricing, or commonly markup pricing, one first calculates the cost of the product, then adds a proportion of it as markup.


This form of cost calculation is easy to do so it is the first choice for contracts in government where demand curves are not readily available. This form can be wasteful if expenditures in the form of direct costs, indirect costs, and fixed costs which are not related to the production or sale of the product are included. Basically, costs need to be converted to a per unit basis for a particular product and then a predetermined percentage of these costs is added to provide a profit margin.