Question 1

An umbrella manufacturing company's fixed costs are $275,000. The variable cost per unit is $5 and each umbrella is sold at $10. How many units should the firm sell in order to break even?
A) 1,819
B) 5,500
C) 18,000
D) 27,500
E) 55,000

Accepted Answer

The answer of An umbrella manufacturing company's fixed costs are...

Question 2

________ pricing takes into account a host of inputs, such as the buyer's image of the product performance, the channel deliverables, the warranty quality, customer support, and attributes such as the supplier's reputation, trustworthiness, and esteem.
A) Perceived-value
B) Value
C) Going-rate
D) Auction-type
E) Markup

Accepted Answer

The description given about the pricing strategy aligns with perceived-value pricing, which takes into consideration the perceived value of the product or service by the customer, along with various other inputs mentioned in the question.

Question 3

In the case of prestige goods, the demand curve sometimes slopes upward.

Accepted Answer

The demand for prestige goods can sometimes increase as the price increases, as consumers perceive higher prices as an indicator of higher quality or exclusivity. This is known as the Veblen Effect.

Question 4

A marketer who has unit costs of $16 and wants to earn a 20 percent markup on sales would charge a markup price of $20.

Accepted Answer

To calculate the markup price, first, we need to calculate the cost-plus markup.

Cost-plus markup = Unit cost + (Markup rate * Unit cost)
Cost-plus markup = $16 + (0.20 * $16)
Cost-plus markup = $16 + $3.20
Cost-plus markup = $19.20

Then, we round up the cost-plus markup to the nearest whole number to get the markup price.

Markup price = $20

Therefore, the statement is true.

Question 5

Which of the following is True regarding price elasticity?
A) The higher the elasticity, the lesser the volume growth resulting from a one-percent price reduction.
B) Long-run and short-run price elasticity may differ, delaying the impact of a price change.
C) If demand is elastic, sellers assume that lowering the price will decrease total revenue.
D) Price elasticity does not depend on magnitude and direction of the contemplated price change.
E) When demand is inelastic, sellers should lower prices in order to increase total revenue.

Accepted Answer

In the short run, customers may not be able to find substitutes for the product, making demand inelastic. In the long run, customers may find substitutes or change their preferences, making demand more elastic. Therefore, the impact of a price change may be delayed or different between short-run and long-run price elasticity. The other options are not true regarding price elasticity.

Question 6

In ________ pricing, the firm bases its price largely on competitor's prices.
A) going-rate
B) auction-type
C) markup
D) target-return
E) perceived-value

Accepted Answer

Going-rate pricing is when a company sets its price based on competitors' prices. This pricing strategy is common in industries where there is little differentiation between products, and customers primarily make their decision based on price. By setting their price at the going rate, companies can stay competitive and avoid losing customers to cheaper alternatives.

Question 7

Matt's retail store offers all products at $2 less than its competitors. The store never runs promotional campaigns or offers special discounts. Matt's retail store is following a(n) ________ pricing policy.
A) auction-type
B) target-plus
C) everyday low
D) high-low
E) going-rate

Accepted Answer

Matt's retail store is offering a constant low price for all products, which is known as an "everyday low" pricing policy. This is different from a high-low policy, where the store has regular promotions and discounts, and a going-rate policy, where the price is set based on the market rates. It is also not an auction-type pricing policy, where the price is set through a bidding process, or a target-plus policy, where the price is set based on a desired profit margin.

Question 8

ConAgra Foods decided its prices had risen too high, so it determined to set a lower price for its products. To make the new price level profitable, ConAgra cut $250 million in costs. What application of cost estimation did this represent?
A) target costing
B) experience-curve pricing
C) ceiling pricing
D) the learning curve
E) promotional price elasticities

Accepted Answer

ConAgra Foods used target costing, which involves determining the target price for a product and then working backwards to determine the maximum allowable cost for that product in order to meet the target price. In this case, the desired lower price level was the target, and the company then cut costs in order to meet that target.

Question 9

A manufacturer has invested $750,000 in a new product and wants to set a price to earn a 15 percent ROI. The cost per unit is $18 and the company expects to sell 50,000 units in the first year. Calculate the company's target-return price for this product.
A) $18.10
B) $18.23
C) $20.25
D) $20.70
E) $25.50

Accepted Answer

To calculate the target-return price, we need to find the total cost of the product (investment + cost per unit) and then add the desired ROI.

Total cost of the product = $750,000 + ($18 x 50,000) = $1,650,000

Desired ROI = 15% of $750,000 = $112,500

Target-return price = (total cost + desired ROI) / number of units sold = ($1,650,000 + $112,500) / 50,000 = $33.15 per unit

However, this price includes both the cost per unit and the ROI. To find the cost per unit, we need to subtract the ROI from the target-return price:

$33.15 - $18 = $15.15

Therefore, the company's target-return price for this product is $18 + $15.15 = $20.15, which is closest to option C, $20.25.

Question 10

Price elasticity depends upon the magnitude and direction of the contemplated price change.

Accepted Answer

This statement is true. Price elasticity measures the responsiveness of quantity demanded to changes in price, but the degree of responsiveness depends on how large the price change is and in which direction (increase or decrease).

Question 11

Everyday low pricing is most suitable if ________.
A) consumers are willing to perform activities such as clip coupons to avail of discounts
B) consumers tend to associate price with quality
C) customers are insensitive to changes in price
D) the cost of conducting frequent sales and promotions is high
E) consumers have sufficient time to find the best prices

Accepted Answer

Everyday low pricing is most suitable when the cost of conducting frequent sales and promotions is high, as it allows businesses to maintain a consistent pricing strategy that can be more cost-effective in the long run.

Question 12

________ auctions let would-be suppliers submit only one bid; they cannot know the other bids.
A) Descending bid
B) Sealed-bid
C) English
D) Dutch
E) Reverse

Accepted Answer

Sealed-bid auctions require suppliers to submit only one bid without knowledge of the other bids, ensuring fairness and preventing collusion between bidders.

Question 13

Despite its weaknesses, markup pricing remains popular for which of the following reasons?
A) Sellers can determine demand much more easily than they can estimate costs.
B) By tying the price to cost, the pricing task becomes more sophisticated.
C) When all firms in the industry use markup pricing, price competition flourishes.
D) Sellers take advantage of buyers when the latter's demand becomes acute.
E) Many people feel that cost-plus pricing is fairer to both buyers and sellers.

Accepted Answer

Many people perceive cost-plus pricing as fairer to both buyers and sellers, as it ensures that sellers receive a reasonable profit margin and buyers pay a price that reflects the cost of producing goods or services. Despite its weaknesses, including the challenge of accurately calculating costs and the potential for pricing based on demand instead of cost, this perception of fairness likely contributes to the continued popularity of markup pricing.

Question 14

If firms wish to maximize their market share, they should opt for market-skimming pricing.

Accepted Answer

Market-skimming pricing involves setting high prices for new products in order to maximize profit and target early adopters. This strategy may not be effective for firms looking to maximize market share, as high prices may deter some potential customers and limit overall adoption of the product. A better pricing strategy for maximizing market share may be market-penetration pricing, which involves setting low prices in order to quickly gain market share and establish a foothold in the industry.

Question 15

Which of the following is the most elementary pricing method?
A) value pricing
B) going-rate pricing
C) markup pricing
D) target-return pricing
E) perceived-value pricing

Accepted Answer

Markup pricing is the most elementary pricing method as it involves adding a standard markup to the cost of the product to determine the selling price. It is a straightforward and easy-to-understand pricing strategy.

Question 16

Total costs consist of the sum of the fixed and the variable costs for any given level of production.

Accepted Answer

This statement is true according to the principles of cost accounting. Total costs include all costs associated with producing a certain level of output, including both fixed costs (which are independent of the level of output) and variable costs (which increase as output increases).

Question 17

The decline in the average cost of production with accumulated production experience is called the ________.
A) demand curve
B) supply chain
C) learning curve
D) value chain
E) indifference curve

Accepted Answer

The decline in the average cost of production with accumulated production experience is called the learning curve. As more units are produced, the workers become more experienced and efficient, which leads to a reduction in production time and cost per unit. Ultimately, this results in a lower per-unit cost of production.

Question 18

Value pricing requires a company to reengineer its operations to become a low-cost producer.

Accepted Answer

The answer of Value pricing requires a company to reengineer...

Question 19

JJ's Hair Salon pays overhead each month, including bills for rent, heat, interest, and salaries. These payments are examples of ________ costs.
A) total
B) average
C) activity-based
D) variable
E) fixed

Accepted Answer

Overhead costs are fixed costs because they do not vary with changes in production or sales levels.

Question 20

In which of the following auctions does the auctioneer first announce a high price for a product and then slowly decreases the price until a bidder accepts?
A) a Dutch auction with one buyer and many sellers
B) an English auction with one seller and many buyers
C) an ascending bid auction
D) a sealed-bid auction
E) a Dutch auction with one seller and many buyers

Accepted Answer

A Dutch auction with one seller and many buyers is characterized by the auctioneer starting with a high price and then lowering it until a bidder accepts the price, which is the opposite of an English or ascending bid auction where the price starts low and bidders push the price up.

Quiz 11: Developing Pricing Strategies and Programs

An umbrella manufacturing company's fixed costs are $275,000. The variable cost per unit is $5 and each umbrella is sold at $10. How many units should the firm sell in order to break even?

________ pricing takes into account a host of inputs, such as the buyer's image of the product performance, the channel deliverables, the warranty quality, customer support, and attributes such as the supplier's reputation, trustworthiness, and esteem.

In the case of prestige goods, the demand curve sometimes slopes upward.

A marketer who has unit costs of $16 and wants to earn a 20 percent markup on sales would charge a markup price of $20.

Which of the following is True regarding price elasticity?

In ________ pricing, the firm bases its price largely on competitor's prices.

Matt's retail store offers all products at $2 less than its competitors. The store never runs promotional campaigns or offers special discounts. Matt's retail store is following a(n) ________ pricing policy.

ConAgra Foods decided its prices had risen too high, so it determined to set a lower price for its products. To make the new price level profitable, ConAgra cut $250 million in costs. What application of cost estimation did this represent?

A manufacturer has invested $750,000 in a new product and wants to set a price to earn a 15 percent ROI. The cost per unit is $18 and the company expects to sell 50,000 units in the first year. Calculate the company's target-return price for this product.

Price elasticity depends upon the magnitude and direction of the contemplated price change.

Everyday low pricing is most suitable if ________.

________ auctions let would-be suppliers submit only one bid; they cannot know the other bids.

Despite its weaknesses, markup pricing remains popular for which of the following reasons?

If firms wish to maximize their market share, they should opt for market-skimming pricing.

Which of the following is the most elementary pricing method?

Total costs consist of the sum of the fixed and the variable costs for any given level of production.

The decline in the average cost of production with accumulated production experience is called the ________.

Value pricing requires a company to reengineer its operations to become a low-cost producer.

JJ's Hair Salon pays overhead each month, including bills for rent, heat, interest, and salaries. These payments are examples of ________ costs.

In which of the following auctions does the auctioneer first announce a high price for a product and then slowly decreases the price until a bidder accepts?