Utah Contractor Practice Exam

Which of the following best describes the overall goal of cost-based pricing?

1. To maximize customer acquisition

2. To break even

3. To ensure profitability

4. To minimize competition

The correct answer is: To ensure profitability

The overall goal of cost-based pricing is primarily to ensure profitability. This approach involves setting prices based on the costs associated with producing a product or providing a service, while adding a markup to cover additional expenses and generate a profit. By calculating all costs—including materials, labor, and overhead—and then determining a pricing strategy that provides a margin above these costs, a business can ensure that it not only covers its expenses but also earns a profit. While breaking even might be a short-term objective for some businesses, it does not reflect the overarching goal of cost-based pricing, which seeks to establish a sustainable profit margin over time. Additionally, although maximizing customer acquisition can be important, it does not specifically relate to the pricing strategy itself. Likewise, minimizing competition may be a strategic business consideration, but it isn’t the focus of cost-based pricing, which is centered on internal cost management and pricing to achieve financial objectives.