pricing method whereby a standard markup is added to the estimated cost of the product. The cost-plus price is computed by dividing the fixed costs of a product by the estimated number of units to be sold and then adding the variable cost per unit, or by adding the total variable costs and fixed costs and then dividing by the total number of units to be produced. This will determine the true unit cost. Once the true unit cost has been determined, that cost is divided by 1 minus the desired return on sales (a percentage) to determine the cost-plus price.
For example, the fixed costs to produce an item are $300,000, the variable costs add up to $100,000, and the estimated number of units to be produced is 50,000. Add 100,000 to 300,000, divide by 50,000, and the true unit cost equals $8. If the desired return on sales is 20%, divide $8 by 1 minus .20, and the cost-plus price for this item will be $10.
