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The advantage of full cost plus pricing is the higher return on investment. The disadvantage of full cost-plus pricing is lower demand for the products.

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Why is cost-plus pricing popular?

The simplest and oldest way to determine price is cost-plus pricing. It is popular because it takes few resources and it provides a consistent rate of return and full coverage of cost.


What is the difference between cost plus pricing and marginal pricing?

Cost plus pricing is based on full product cost plus desired profit margin to arrive at the product price, while marginal cost plus pricing makes use of the product's total variable cost plus desired profit margin to arrive at the product's price. Marginal cost plus pricing (or "mark-up pricing) is based on demand, and completely ignores fixed costs in arriving at the product's price.