Which of the following statements is true about average cost-pricing?
A) It can result in losses if actual sales are higher than expected.
B) It is more profitable if actual sales are lower than expected.
C) It does not take the demand curve into account when setting prices.
D) It works better in practice than it does in theory.
E) It can be used to set a price without an estimate of the quantity to be sold.

Question

Quizplus · Accepted Answer

Average cost-pricing is a simple method of pricing where the price is set based on the average cost of production (fixed and variable costs) per unit plus a markup percentage. This method does not take the demand curve into account when setting prices, which can result in pricing products higher or lower than their actual market value. Therefore, option C is the correct statement. Options A and B are incorrect because average cost-pricing does not depend on actual sales, but on the average cost of production. Option D is incorrect as there is no evidence to suggest that it works better in practice. Option E is also incorrect since the average cost per unit is calculated by dividing the total cost by the quantity produced, so an estimate of the quantity to be sold is required.

Which of the Following Statements Is True About Average Cost-Pricing