Holding all other things constant, an increase in how sensitive customers are to price would affect:
A)the markup under the absorption costing approach to cost-plus pricing.
B)the markup used to compute the profit-maximizing price.
C)both the markup under the absorption costing approach to cost-plus pricing and the markup used to compute profit-maximizing price.
D)neither the markup under the absorption costing approach to cost-plus pricing nor the markup used to compute profit-maximizing price.

Question

Quizplus · Accepted Answer

An increase in price sensitivity of customers would lead to a decrease in demand for a product, which would require a decrease in the markup used to calculate the profit-maximizing price in order to maintain the desired level of profitability. The absorption costing approach to cost-plus pricing is not affected by changes in customer price sensitivity as it is based on the overall cost structure of a product.

Holding All Other Things Constant, an Increase in How Sensitive