IB Business Management HL 4.5.3 Pricing methods Question Bank

Smith's Foods Ltd (SF)
Charles Smith and seven friends started a private limited company, Smith's Foods Ltd (SF), to produce ready-made healthy meals for people with diabetes*. Using a cost-plus (mark-up) pricing strategy, SF's mission is to make inexpensive, widely available meals that help diabetics manage their carbohydrate intake accurately.
Despite reliance on inexpensive social media marketing, S F grew rapidly. Due to this rapid growth, however, the quality of its products deteriorated, and a number of its meals were found to contain different quantities of carbohydrate than those stated on the packaging. Negative comments appeared on SF's Instagram page. Charles responded quickly to reassure customers and offered refunds. SF's response led to the company receiving an industry award for ethical behaviour.
Charles introduced flow production to reduce the cost of S F 's meals, which changed S F 's scale of operations and increased its gearing ratio. However, Charles had little business experience of using flow production and problems emerged.
External stakeholders began to look into SF's operations. One supermarket chain, Good Foods (GF), contacted Charles and offered to take over SF, keeping Charles on the board of directors. This takeover would allow SF's meals to be produced at a lower cost and reach a wider target market. GF would also finance research and development into new meals with more carefully controlled carbohydrate levels.
However, SF would close. Negative publicity would be considerable. The remaining shareholders have threatened to launch a new business, creating their own brand of meals for people with diabetes in direct competition with GF.
* diabetes: a medical condition that causes a person's blood sugar level to become too high. People with diabetes need to be mindful of the amount of carbohydrates (which includes sugar) they include in their diet.

Define the term cost-plus (mark-up) pricing strategy.