cost-plus pricing

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cost-plus pricing

see COST-BASED PRICING.

cost-plus pricing

a pricing method that sets the PRICE of a product by adding a profit mark-up to AVERAGE COST or unit total cost. This method is similar to that of FULL-COST PRICING insofar as the price of a product is determined by adding a percentage profit mark-up to the product's unit total cost. Indeed, the terms are often used interchangeably. Cost-plus pricing, however, is used more specifically to refer to an agreed price between a purchaser and the seller, where the price is based on actual costs incurred plus a fixed percentage of actual cost or a fixed amount of profit per unit. Such pricing methods are often used for large capital projects or high technology contracts where the length of time of construction or changing technical specifications leads to a high degree of uncertainty about the final price.

Cost-plus pricing is frequently criticized for failing to give the supplier an incentive to keep costs down.