When making pricing decisions managers should include fixed cost per unit in the cost because ________.
A) it leads to reporting higher operating income for the period
B) it allows managers to report positive contribution as long as prices are above variable costs
C) in the long run, the price of a product must exceed the full cost of the product
D) it requires the management accountant to perform a detailed analysis of cost-behavior patterns to separate product costs into variable and fixed components

Question

Quizplus · Accepted Answer

Including fixed cost per unit ensures that the price of a product exceeds its full cost in the long run, which is necessary for the sustainability and profitability of a business. Option A is incorrect because including fixed cost per unit may actually decrease reported operating income. Option B is misleading because it suggests that as long as prices exceed variable costs, profitability is assured, which is not true as fixed costs must also be covered. Option D is also incorrect because the need to analyze cost-behavior patterns to separate costs into variable and fixed components is not directly related to the inclusion of fixed cost per unit in pricing decisions.

When Making Pricing Decisions Managers Should Include Fixed Cost Per