Holding all other things constant, an increase in variable selling costs will affect:
A)the selling price under the absorption costing approach to cost-plus pricing.
B)the profit-maximizing price.
C)both the selling price under the absorption costing approach to cost-plus pricing and the profit-maximizing price.
D)neither the selling price under the absorption costing approach to cost-plus pricing nor the profit-maximizing price.

Question

Quizplus · Accepted Answer

An increase in variable selling costs will increase the total cost of the product, therefore affecting both the selling price under the absorption costing approach to cost-plus pricing and the profit-maximizing price. The absorption costing approach sets the selling price by adding a markup to the total cost of the product, including variable selling costs. Similarly, the profit-maximizing price is determined by subtracting the total cost from the revenue and setting the result equal to zero (i.e., finding the breakeven point). Therefore, any increase in variable selling costs will affect both the cost-plus and profit-maximizing prices.

Holding All Other Things Constant, an Increase in Variable Selling