Question 1

One of the requirements to be able to offer ________ is to make certain that the firms' cash position is ________.
A) installment credit; positive
B) installment credit; strong enough to support the additional pressure
C) trade credit; positive
D) trade credit; strong enough to support the additional pressure

Accepted Answer

The question is asking about offering trade credit, not installment credit. Additionally, the firm's cash position must be strong enough to support the additional pressure of offering trade credit, which indicates a need for financial stability. Therefore, the best choice is D, trade credit; strong enough to support the additional pressure.

Question 2

It has been reported that the use of credit cards increases the ________ of customer spending.
A) probability
B) speed
C) magnitude
D) All of the above

Accepted Answer

The use of credit cards increases the probability of customer spending because it eliminates the need for cash and creates a psychological distance between the purchase and its actual cost. It also increases the speed of customer spending because transactions can be completed quickly and easily. Finally, it increases the magnitude of customer spending because credit cards often come with rewards programs or cashback incentives, encouraging customers to spend more to earn more rewards.

Question 3

Which of the following businesses would be most likely to offer installment credit to its customers?
A) A retailer of major appliances
B) A convenience store
C) A printer
D) A clothing retailer

Accepted Answer

A retailer of major appliances typically sells high-priced items that many customers cannot afford to pay for in full upfront. Offering installment credit allows customers to make smaller, more manageable payments over a longer period of time.

Question 4

To avoid major pricing mistakes, business owners should "shop" their competitors and asses their prices, especially on identical products.

Accepted Answer

By researching and assessing competitor prices, business owners can ensure that their pricing is competitive and not too high or too low. This can help prevent major pricing mistakes that could negatively impact profits and sales.

Question 5

Which of the following is/are not true regarding pricing for service firms?
A) A service firm must establish a price based on the materials used to provide the service, the labor employed, an allowance for overhead, and a profit.
B) Most service firms base their prices on an hourly rate-usually actual hours, but sometimes standard hours are used.
C) For most service firms, labor and profit comprise the largest portion of the cost of the service.
D) None of the above

Accepted Answer

The answer of Which of the following is/are not true...

Question 6

A study by Rafi Mohammed, author of The Art of Pricing, found that companies that raised prices by 1 percent saw profits increase by 11 percent and those that raised prices by 10 percent realized profit increases of 100 percent.

Accepted Answer

The study by Rafi Mohammed states that companies that raised prices by 1 percent saw profits increase by 11 percent and those that raised prices by 10 percent realized profit increases of 100 percent.

Question 7

The most effective technique by which small companies can gain a competitive edge over their larger rivals is to charge lower prices for the goods and services they sell.

Accepted Answer

While charging lower prices may be one way for a small company to compete with larger rivals, it is not the most effective technique. Small companies may also focus on providing superior customer service, offering unique products or services, targeting niche markets, or leveraging their agility and flexibility to respond quickly to market changes. Pricing strategies should be carefully considered and balanced with other factors that can contribute to competitive advantage.

Question 8

Pandecker, Inc., estimates the variable costs of producing one unit to be $11.26. The company plans to produce 26,500 units. The fixed costs the company expects to incur are $82,770. What is Pandecker's break-even selling price?
A) $14.38
B) $35.17
C) $11.26
D) $3.12

Accepted Answer

Break-even point is the point at which total revenue equals total costs. The formula to calculate the break-even selling price is:

Break-even selling price = (Total fixed costs + Total variable costs) / Number of units produced

Total variable costs = Variable cost per unit x Number of units produced
Total variable costs = $11.26 x 26,500
Total variable costs = $298,190

Break-even selling price = ($82,770 + $298,190) / 26,500
Break-even selling price = $380,960 / 26,500
Break-even selling price = $14.38

Therefore, the break-even selling price is $14.38, which is option A.

Question 9

A customer who purchases a television from Ace Appliance Store and pays for it in 36 monthly payments is most likely using:
A) trade credit.
B) charge account credit.
C) installment credit.
D) debit card credit.

Accepted Answer

The fact that the customer is paying for the television in 36 monthly payments indicates that they are using installment credit, which allows the customer to make payments over time rather than paying for the entire purchase upfront. Trade credit and charge account credit are types of credit typically used in business-to-business transactions, while debit card credit is not a type of credit at all but rather a feature of certain debit cards that allows the cardholder to make purchases using funds that exceed their account balance.

Question 10

Without the advantage of a unique business image, a small business must match local competitors' prices or risk losing sales and customers.

Accepted Answer

Without a unique business image, small businesses have to compete with local competitors solely based on price, and failure to match their prices can lead to loss of sales and customers.

Question 11

The use of credit cards by consumers:
A) has little real impact on sales.
B) broadens a small company's customer base.
C) costs businesses nothing and adds significantly to their sales.
D) has no impact on pricing decisions.

Accepted Answer

The use of credit cards by consumers broadens a small company's customer base as it allows customers to make purchases even if they don't have cash on hand.

Question 12

A reliable cost accounting system is necessary for accurate pricing. The traditional method of product costing, where the costs of direct materials, direct labor, and factory overhead are included in a finished product's total cost is called ________.
A) absorption costing
B) break-even pricing
C) direct costing
D) absorption pricing

Accepted Answer

Absorption costing includes all costs of production, including direct materials, direct labor, and factory overhead, in a finished product's total cost. This method is considered the traditional method of product costing. Break-even pricing is a method of pricing that takes into account the volume of sales needed to cover all the costs of production. Direct costing, also known as variable costing, only includes the costs that vary with the level of production, such as direct materials and direct labor, in a finished product's total cost. Absorption pricing is a method of setting prices based on the full cost of production, including a markup for profit.

Question 13

________ tells what portion of the total revenue remains, after covering variable costs, to contribute toward meeting fixed expenses and earning a profit.
A) The full absorption statement
B) The break-even selling price
C) The contribution percentage
D) Cost-plus pricing

Accepted Answer

The contribution percentage is a measure of profitability that calculates what portion of revenue is left over after covering variable expenses. It is calculated by dividing the contribution margin (revenue minus variable costs) by revenue. This percentage can then be used to help determine pricing strategies and make decisions regarding cost control and profit margins.

Question 14

The best way to survive a price war is to engage in the battle and emphasize the unique features, benefits, and value your company offers its customers.

Accepted Answer

The answer of The best way to survive a price...

Question 15

The fee that banks collect from retailers whenever customers use a credit or a debit card to pay for a purchase is known as the:
A) interchange fee.
B) chargeback fee.
C) processing fee.
D) installment fee.

Accepted Answer

The fee that banks collect from retailers whenever customers use a credit or a debit card to pay for a purchase is known as the interchange fee. This fee represents a percentage of the transaction amount and covers the cost of processing the transaction, reimbursing the cardholder's bank, administering the payment network, and providing fraud protection. The interchange fee varies depending on the type of card used, the merchant category code, and the transaction amount.

Question 16

Pandecker, Inc., estimates the variable costs of producing one unit to be $11.26. The company plans to produce 26,500 units. The fixed costs the company expects to incur are $82,770. If Pandecker's profit target is $75,000, what price should it charge?
A) $14.38
B) $35.17
C) $17.21
D) $11.26

Accepted Answer

To calculate the selling price per unit, we need to use the following formula:

Selling Price = (Variable Cost per unit * Number of units) + Fixed Costs + Profit Target) / Number of units

Selling Price = ($11.26 * 26,500) + $82,770 + $75,000) / 26,500
Selling Price = $551,915 / 26,500
Selling Price = $20.83

Therefore, the answer is C) $17.21, which is the closest option to $20.83.

Question 17

The prices a small business charges influence its image in the marketplace.

Accepted Answer

The prices a small business charges can affect how customers perceive the business. For example, a business that charges very low prices may be seen as providing low-quality products or services, while a business that charges high prices may be seen as upscale and exclusive. The pricing strategy a business chooses can impact its brand and reputation in the marketplace.

Question 18

The most common pricing mistake small business owners make is setting the price for the products and services they sell too high.

Accepted Answer

The most common pricing mistake small business owners make is actually setting their prices too low, which can lead to loss of profits and undervaluing the product or service.

Question 19

The desired image for the business, the target market the owner is trying to reach, and the prices charged are all closely related to one another.

Accepted Answer

The desired image for the business and the target market determine the prices that can be charged. If the target market desires luxury and high-end products, the prices will be higher to maintain that image. On the other hand, if the desired image is affordability and accessibility, the prices will be lower. Therefore, all three factors are interdependent.

Question 20

Small companies have three options for selling to customers on credit:
A) credit cards, manufacturer credit, and trade credit.
B) credit cards, installment credit, and trade credit.
C) credit cards, installment credit, and poor credit.
D) debit cards, installment credit, and trade credit.

Accepted Answer

Credit cards and trade credit are common options for small businesses. Installment credit may be a good choice for larger purchases with longer payment terms. Poor credit is not a viable option for selling on credit, as it increases the risk of nonpayment and hurts the company's credit score. Debit cards are not a form of credit, so they are not a valid option for selling on credit.

Quiz 10: Pricing Strategies

One of the requirements to be able to offer is to make certain that the firms' cash position is .

It has been reported that the use of credit cards increases the ________ of customer spending.

Which of the following businesses would be most likely to offer installment credit to its customers?

To avoid major pricing mistakes, business owners should "shop" their competitors and asses their prices, especially on identical products.

Which of the following is/are not true regarding pricing for service firms?

A study by Rafi Mohammed, author of The Art of Pricing, found that companies that raised prices by 1 percent saw profits increase by 11 percent and those that raised prices by 10 percent realized profit increases of 100 percent.

The most effective technique by which small companies can gain a competitive edge over their larger rivals is to charge lower prices for the goods and services they sell.

Pandecker, Inc., estimates the variable costs of producing one unit to be $11.26. The company plans to produce 26,500 units. The fixed costs the company expects to incur are $82,770. What is Pandecker's break-even selling price?

A customer who purchases a television from Ace Appliance Store and pays for it in 36 monthly payments is most likely using:

Without the advantage of a unique business image, a small business must match local competitors' prices or risk losing sales and customers.

The use of credit cards by consumers:

A reliable cost accounting system is necessary for accurate pricing. The traditional method of product costing, where the costs of direct materials, direct labor, and factory overhead are included in a finished product's total cost is called ________.

________ tells what portion of the total revenue remains, after covering variable costs, to contribute toward meeting fixed expenses and earning a profit.

The best way to survive a price war is to engage in the battle and emphasize the unique features, benefits, and value your company offers its customers.

The fee that banks collect from retailers whenever customers use a credit or a debit card to pay for a purchase is known as the:

Pandecker, Inc., estimates the variable costs of producing one unit to be $11.26. The company plans to produce 26,500 units. The fixed costs the company expects to incur are $82,770. If Pandecker's profit target is $75,000, what price should it charge?

The prices a small business charges influence its image in the marketplace.

The most common pricing mistake small business owners make is setting the price for the products and services they sell too high.

The desired image for the business, the target market the owner is trying to reach, and the prices charged are all closely related to one another.

Small companies have three options for selling to customers on credit: