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1. When setting long-term sales prices for products, the sales price must cover all costs, including...

1. When setting long-term sales prices for products, the sales price must cover all costs, including fixed costs.

True or False

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Answer #1

The answer is True.

When we use absorption costing method, the fixed production overhead are charged to products and are included in product costs. Consequently the closing stocks are valued on total cost (including fixed overhead) basis.

Absorption Pricing can be defined as the method by which a company sets its long-term sale prices for products. Therefore the price would include variable cost as well as proportionate amount of fixed costs. A business would maintain the amount of profit it earns if it uses this pricing technique.

Therefore it can be concluded that when setting long-term sales prices for products, the sales price must cover all costs, including fixed costs is Correct.

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