Question 1

Target return pricing uses the concept of a(n) ________, which shows the total cost and total revenue expected at different sales volume levels.
A) BCG matrix
B) break-even chart
C) SWOT analysis
D) demand curve
E) experience curve

Accepted Answer

Target return pricing uses a break-even chart, which shows the total cost and total revenue expected at different sales volume levels, to determine the selling price necessary to achieve a desired target return on investment. The other options listed are not directly related to target return pricing.

Question 2

Samsung Mobile plans to launch a new phone with a unit cost of $270 and wants to earn a 10 percent markup on its sales. Samsung's markup price is ________.
A) $275
B) $280
C) $295
D) $300
E) $335

Accepted Answer

The answer of Samsung Mobile plans to launch a new...

Question 3

Mansfield Pharmaceuticals markets Zipro, an antibiotic. The firm has fixed costs of $1,000,000 and variable costs of $2 per bottle of 50 tablets priced at $10 per bottle. What is the break-even volume?
A) 25,000
B) 55,000
C) 100,000
D) 115,000
E) 125,000

Accepted Answer

The answer of Mansfield Pharmaceuticals markets Zipro, an antibiotic. The...

Question 4

As a manufacturer increases the price, ________.
A) efficiency drops
B) the break-even volume drops
C) competition is minimized
D) the total costs increase
E) the profit margin shrinks

Accepted Answer

The answer of As a manufacturer increases the price, ________.
A)...

Question 5

Why is markup pricing most likely popular?
A) Sellers are more certain about demand than about costs.
B) Markup pricing tends to maximize market competition.
C) Markup pricing affords buyers greater bargaining power.
D) Sellers do not need to make frequent adjustments as demand changes.
E) Markup pricing is designed to set prices to break even on the costs of making and marketing a product.

Accepted Answer

The answer of Why is markup pricing most likely popular?
A)...

Question 6

Which of the following is a cost-based approach to pricing?
A) value-based pricing
B) high-low pricing
C) target return pricing
D) good value pricing
E) EDLP

Accepted Answer

Target return pricing is a cost-based approach to pricing where the price is set at a level that will give the company the target return on investment or profit margin desired.

Question 7

Which of the following statements about break-even analysis is true?
A) It is used to determine how much production experience a company must have in order to achieve desired efficiencies.
B) It is a technique used to calculate fixed costs.
C) It determines the amount of retained earnings a company will have during a given accounting period.
D) It is a technique marketers use to determine the relationship between supply and demand.
E) It is calculated by using variable costs, the unit price, and fixed costs.

Accepted Answer

Break-even analysis is performed by using variable costs, the unit price, and fixed costs to determine the amount of sales a company needs to make in order to break even and have zero profit or loss.

Question 8

Target return pricing is a variation of which of the following cost-oriented pricing approaches?
A) cost-plus pricing
B) break-even pricing
C) markup pricing
D) value-based pricing
E) fixed cost pricing

Accepted Answer

The answer of Target return pricing is a variation of...

Question 9

The break-even volume is the point at which ________.
A) the total revenue and total cost curves intersect
B) demand equals supply
C) the production of one more unit will not lead to increase in demand
D) the company can pay off all its long-term debt
E) a firm exceeds the sales forecast

Accepted Answer

The break-even volume is the point where total revenue and total cost are equal, which is represented by the intersection of the two curves. At this point, the company is not making a profit or a loss, but simply breaking even. Therefore, option A is the correct answer. Options B, C, D, and E are not related to the concept of break-even volume.

Question 10

The simplest pricing method is ________ pricing.
A) value-based
B) fixed cost
C) cost-plus
D) target return
E) competition-based

Accepted Answer

The answer of The simplest pricing method is ________ pricing.
A)...

Question 11

Which of the following is most likely a risk associated with experience-curve pricing?
A) High-volume production facilities are unable to meet demand.
B) New technology often leads to productivity problems.
C) Demand for the product fluctuates unpredictably.
D) Consumers tend to prefer new brands over established ones.
E) Aggressive pricing often gives a product a cheap image.

Accepted Answer

The answer of Which of the following is most likely...

Question 12

A company faces fixed costs of $100,000 and variable costs of $8 per unit. It plans to directly sell its product in the market for $12. How many units must it produce and sell to break even?
A) 20,000
B) 25,000
C) 30,000
D) 35,000
E) 40,000

Accepted Answer

To break even, the total revenue earned from selling the units must be equal to the total cost incurred.

Let the number of units produced and sold be x.

Total Cost = Fixed Cost + Variable Cost
Total Cost = $100,000 + $8x

Total Revenue = Selling Price per Unit * Number of Units Sold
Total Revenue = $12x

At break-even point, Total Cost = Total Revenue
$100,000 + $8x = $12x
$4x = $100,000
x = 25,000

Therefore, the company must produce and sell 25,000 units to break even. Choice B is the correct answer.

Question 13

A downward-sloping experience curve is indicative of ________.
A) the negative customer perception about a company's products
B) the falling demand for a company's products
C) the falling unit production cost of a company
D) the low quality of a company's products
E) slow and inadequate organizational learning

Accepted Answer

The experience curve refers to the declining cost per unit of production resulting from cumulative production experience, learning, and knowledge. Therefore, a downward-sloping experience curve is indicative of the falling unit production cost of a company.

Question 14

A manufacturer has fixed costs of $100,000, a variable cost of $10 per unit of output, and break-even volume of 50,000 units. What should the manufacturer's unit cost be in order to break even?
A) $10
B) $12
C) $14
D) $16
E) $20

Accepted Answer

The answer of A manufacturer has fixed costs of $100,000,...

Question 15

Herbie Inc., a firm manufacturing sandwich makers, has fixed costs of $250,000, variable costs of $20 per unit of output, and expected unit sales of 50,000 units. What is the unit cost of a sandwich maker manufactured by Herbie?
A) $15
B) $25
C) $30
D) $50
E) $75

Accepted Answer

Total variable costs = Variable cost per unit x Units of output = $20 x 50,000 = $1,000,000

Total cost = Fixed costs + Total variable costs = $250,000 + $1,000,000 = $1,250,000

Unit cost = Total cost / Units of output = $1,250,000 / 50,000 = $25. Therefore, the unit cost of a sandwich maker is $25.

Question 16

John assured his venture capitalists an earning of 25 percent return on equity when he began his IT start-up. In order to achieve this result, he will most likely use which of the following pricing approaches?
A) value-based pricing
B) markup pricing
C) EDLP
D) customer-based pricing
E) target return pricing

Accepted Answer

Target return pricing is a pricing approach where a company sets a price to achieve a particular target rate of return on investment. John's assurance of a 25% return on equity indicates that he wants to use a target return pricing approach to determine his prices.

Question 17

Cost-plus pricing ________.
A) is a complex pricing method
B) involves pricing that accurately reflects production costs
C) involves adding a standard markup for profit
D) aims at breaking even on the costs of making and marketing a product
E) is a value-based pricing method

Accepted Answer

Cost-plus pricing involves adding a standard markup for profit on top of production costs, so option C is correct. Option A is incorrect as it is not necessarily complex. Option B is incorrect as cost-plus pricing does not always accurately reflect production costs. Option D is partially correct as breaking even is a consideration, but not the main goal. Option E is incorrect as cost-plus pricing is not a value-based pricing method.

Question 18

Why is markup pricing most likely impractical?
A) Calculating costs is complicated due to fluctuations.
B) By tying the price to cost, sellers oversimplify pricing.
C) When all firms in the industry use this pricing method, prices tend to be similar.
D) The method ignores demand and competitor prices.
E) With a standard markup, consumers know when they are being overcharged.

Accepted Answer

Markup pricing ignores market demand and competitor prices, which can lead to overpricing or underpricing of goods and services. This can result in pricing that is too high or too low, which can negatively impact a business's profits and competitiveness in the market. As a result, this method of pricing is impractical for most businesses.

Question 19

Lawyers, accountants, and other professionals typically price by adding a standard markup for profit. This exemplifies ________.
A) target pricing
B) cost-plus pricing
C) value-based pricing
D) break-even pricing
E) penetration pricing

Accepted Answer

Cost-plus pricing is a method of determining the selling price of a product or service by adding a markup to the cost of production. This is a common pricing strategy used by professionals such as lawyers and accountants, as mentioned in the question.

Question 20

Experience-curve pricing assumes that ________.
A) competitors are weak and not willing to fight price cuts
B) competitors are strong and invincible
C) aggressive pricing adversely affects product image
D) volume-based production slows down organizational learning
E) lower-cost technologies are almost always inferior

Accepted Answer

Experience-curve pricing assumes that competitors are weak and not willing to fight price cuts, allowing a company to reduce prices as it gains experience and reduces costs through increased production volume.

Quiz 10: Pricing: Understanding and Capturing Customer Value

Target return pricing uses the concept of a(n) ________, which shows the total cost and total revenue expected at different sales volume levels.

Samsung Mobile plans to launch a new phone with a unit cost of $270 and wants to earn a 10 percent markup on its sales. Samsung's markup price is ________.

Mansfield Pharmaceuticals markets Zipro, an antibiotic. The firm has fixed costs of $1,000,000 and variable costs of $2 per bottle of 50 tablets priced at $10 per bottle. What is the break-even volume?

As a manufacturer increases the price, ________.

Why is markup pricing most likely popular?

Which of the following is a cost-based approach to pricing?

Which of the following statements about break-even analysis is true?

Target return pricing is a variation of which of the following cost-oriented pricing approaches?

The break-even volume is the point at which ________.

The simplest pricing method is ________ pricing.

Which of the following is most likely a risk associated with experience-curve pricing?

A company faces fixed costs of $100,000 and variable costs of $8 per unit. It plans to directly sell its product in the market for $12. How many units must it produce and sell to break even?

A downward-sloping experience curve is indicative of ________.

A manufacturer has fixed costs of $100,000, a variable cost of $10 per unit of output, and break-even volume of 50,000 units. What should the manufacturer's unit cost be in order to break even?

Herbie Inc., a firm manufacturing sandwich makers, has fixed costs of $250,000, variable costs of $20 per unit of output, and expected unit sales of 50,000 units. What is the unit cost of a sandwich maker manufactured by Herbie?

John assured his venture capitalists an earning of 25 percent return on equity when he began his IT start-up. In order to achieve this result, he will most likely use which of the following pricing approaches?

Cost-plus pricing ________.

Why is markup pricing most likely impractical?

Lawyers, accountants, and other professionals typically price by adding a standard markup for profit. This exemplifies ________.

Experience-curve pricing assumes that ________.