Which strategy involves charging a percentage over the cost of an item to arrive at the selling price?

The strategy that involves charging a percentage over the cost of an item to determine the selling price is known as cost-plus pricing. This method is straightforward: you calculate the total cost of producing an item (which includes materials, labor, overhead, etc.) and then add a predetermined percentage markup to that cost. This allows for a clear and consistent way to establish prices while ensuring that all costs are covered and a profit margin is achieved.

This pricing strategy is especially useful in environments where costs can be calculated accurately, as it provides a simple formula that can be easily understood and applied. It focuses solely on the cost of the item rather than external market factors or customer perceptions, which can be beneficial for inventory management and for businesses that have stable production costs.

In contrast to this, value-based pricing focuses on the perceived value of the product to the customer rather than strictly on the cost; competitive pricing is based on the prices set by competitors in the market; and discount pricing is a strategy to reduce prices to increase demand, which does not involve a percentage markup over cost. Each of these alternate strategies reflects a different approach to pricing that considers various influences outside of the cost structure.