Using only the variable cost as a base may tempt managers to cut prices as long as prices are above variable cost.

Question

Quizplus · Accepted Answer

If managers only consider the variable cost, they may be inclined to lower prices until they reach the break-even point or even below it, which can ultimately harm the company's profitability. It is essential to also consider fixed costs and overall profitability when making pricing decisions.

Using Only the Variable Cost as a Base May Tempt