Final answer:
The costplus price is described by the total cost of production plus the desired profit, which is option a. This ensures that all costs are covered and the company achieves its intended profit margin.
Step-by-step explanation:
The costplus pricing strategy is often used by companies to ensure that all costs of producing a product are covered and a specific profit margin is achieved. According to this approach, the costplus price is described by total cost plus desired profit, which corresponds to option a. This means that the costplus price combines the sum of all costs necessary to produce the good, including both fixed and variable costs, and an additional amount that represents the desired profit the company aims to earn. To calculate the costplus price, one would take the total cost of production, which is calculated by adding all explicit costs such as materials, labor, and overhead, then add a markup that represents the desired profit. The markup is typically a percentage of the total cost and is determined based on the profit margin the company seeks to achieve. For example, if the total cost to produce a widget is $100 and the company desires a 20% profit margin, the costplus price would be calculated as $100 (total cost) + ($100 x 20%) (desired profit) = $120 (costplus price).