What term describes the method used by management to establish the selling price for services and merchandise?

• A. Price quotation
• B. Markup policy
• C. Cost-based pricing
• D. Price determination

Answer: (D)

The key idea is understanding how prices are set for both services and merchandise. This is the price determination process—the formal activity by management to decide the selling price. It involves weighing costs, desired profit, market conditions, competition, and company policy to arrive at a final price.

Price quotation is just the price presented for a specific item or service to a customer, not the overall method management uses to establish prices. A markup policy describes how much above cost to add, which is a component or tool within pricing but not the broad process itself. Cost-based pricing focuses on pricing derived from costs, which is a method used within price determination. Price determination, however, captures the complete process of selecting the final price through these factors, making it the best description of how management establishes selling prices.