Your furniture business uses a strategy where prices are set based on costs plus a standard markup. This is known as a ________ strategy.

The strategy where prices are set based on costs plus a standard markup is known as cost-based pricing. This approach involves calculating the total cost of producing a product, which encompasses both direct costs (like materials and labor) and indirect costs (like overhead). After determining the total cost, a predetermined markup percentage is applied to ensure profitability.

Cost-based pricing is particularly useful for businesses looking to maintain consistent profit margins. It allows for straightforward pricing decisions and helps manage costs effectively. This strategy contrasts with other pricing methods, as it focuses primarily on the cost of production rather than market demand or competitor pricing.

Understanding this pricing method is crucial for managing small business finances, as it provides a clear framework for setting prices based on actual costs incurred, ensuring that pricing is structured to cover expenses and achieve desired profit levels.