New York State Master Electrician Practice Exam

What aspect determines the selling price of electrical components based on overhead costs?

1. Market demand

2. Manufacturing cost

3. Cost-plus pricing

4. Competitive pricing

The correct answer is: Cost-plus pricing

Cost-plus pricing is a strategy used to set the selling price of products by adding a specified markup to the total cost of producing the item, which includes overhead costs. This approach takes into account all costs associated with manufacturing, such as materials, labor, and overhead, and then adds a profit margin on top of these expenses. By employing cost-plus pricing, a business ensures that it covers all costs while making a profit. This method is particularly essential in industries like electrical components, where establishing a reliable pricing structure helps in managing fluctuating costs and maintaining profitability. Market demand influences pricing but does not directly relate to costs. Manufacturing cost reflects the actual expenses incurred in production but does not account for the additional markup needed for profit. Competitive pricing is based on what competitors charge and does not directly consider overhead costs, making cost-plus pricing the most relevant approach when focusing on determining selling price based on overhead.