Question

What is cost-plus regulation?

Short answer

Prices are determined by adding a certain percentage of profit to the costs, thus the term "cost plus.

Step-by-step solution

Step1. Introduction

Cost-plus regulation is a sort of government regulation that examines a firm's accounting costs and then adds a regular profit rate to establish the highest price a company can charge over a period of time.

Step2. Explanation

Cost plus regulation is a government-imposed rule for a business.

This law defines the maximum price a business can charge for a specific period of time. This price is usually computed by multiplying the firm's accounting costs by a regular profit rate.

When a vendor uses a cost plus pricing approach, he or she adds a markup price to the product's unit cost.

As a result, prices are determined by adding a certain percentage of profit to the costs, thus the term "cost plus."

As a result, the corporation charges the clients these prices.