Which of the following best describes cost-based pricing?

Cost-based pricing is a strategy where the price of a product is determined primarily by calculating the costs associated with producing or providing that product, and then adding a desired profit margin. This approach focuses on the expense incurred in creation, such as materials, labor, and overhead costs. By ensuring that prices cover costs plus an acceptable profit, businesses can maintain profitability and sustainability.

This method contrasts with pricing strategies that consider external factors, such as customer demand or competitive pricing. While those strategies focus on market dynamics, cost-based pricing centers on the internal financial framework of the business. Understanding this approach is crucial for businesses that prioritize cost control and stable profit margins over responsiveness to external market fluctuations.