Question 1

What is it called when a manufacturer offers an intermediary a percentage discount off the list price of products it handles in exchange for performing certain wholesaling activities?
A) cash rebate
B) list price
C) cumulative discount
D) trade discount

Accepted Answer

This is known as a trade discount, which is offered to intermediaries (such as wholesalers) in exchange for their services, such as handling and distributing the manufacturer's products. Cash rebates are different in that they involve returning a portion of the purchase price after the sale has been made, while list price refers to the original price of the product before any discounts are applied. Cumulative discounts are discounts that increase based on the quantity of products purchased over time.

Question 2

What is the skimming pricing strategy sometimes referred to as?
A) market-plus pricing
B) competitive pricing
C) penetration pricing
D) functional pricing

Accepted Answer

Skimming pricing strategy is sometimes referred to as market-plus pricing because it involves setting a high price initially and then gradually lowering it, capturing the high-end market segment first.

Question 3

A product is priced to sell for $12 with average variable costs of $8.The company expects to earn a profit of $400 000 with its total fixed costs of $120 000.What is the minimum number of units that must be sold in order to reach this target return?
A) 80 000
B) 120 000
C) 130 000
D) 400 000

Accepted Answer

To achieve a profit of $400,000 with total fixed costs of $120,000, the total contribution margin needed is $400,000 + $120,000 = $520,000. The contribution margin per unit is the selling price minus the variable cost, which is $12 - $8 = $4. Therefore, the minimum number of units needed to reach the target return is $520,000 / $4 = 130,000 units.

Question 4

In order to recover research and development costs rapidly and earn initial high profits, Sony set a high price for its plasma TVs.What is the pricing strategy Sony used?
A) market-share
B) skimming
C) penetration
D) competitive

Accepted Answer

Sony used a skimming pricing strategy, which entails setting an initial high price to recover research and development costs quickly and earn high profits. This strategy is commonly used for innovative and technologically advanced products.

Question 5

What should customers submit to the creditor if they want to take the discount on an invoice for $300 dated April 1 with terms of 3/10 net 30?
A) $285 by April 15
B) $291 by April 10
C) $297 by April 30
D) $300 by April 12

Accepted Answer

To take advantage of the discount, customers must pay within 10 days of the invoice date. The discount is calculated as 3% of $300, which is $9. Therefore, the amount to be paid to take advantage of the discount is $300 - $9 = $291. This must be paid by April 10th to take advantage of the discount.

Question 6

What type of demand for a product would penetration pricing work BEST for?
A) elastic
B) highly elastic
C) inelastic
D) highly inelastic

Accepted Answer

Penetration pricing works best for products with highly elastic demand because a lower price can significantly increase the quantity demanded, allowing the company to quickly gain market share.

Question 7

Which of the following is NOT a characteristic of everyday low pricing?
A) Seasonal changes in prices are based on current demand.
B) It is purely cost-based prices that vary as the manufacturer's costs vary.
C) It relies on short-term price-cutting tactics such as cents-off coupons, rebates, and special sales.
D) The prices are reviewed and are set daily, weekly, or monthly in reaction to competitors' actions.

Accepted Answer

Everyday low pricing does not rely on short-term price-cutting tactics such as cents-off coupons, rebates, and special sales. It is a long-term pricing strategy that sets prices at a consistent, competitive level to provide value to customers.

Question 8

What type of discount is given off the list price for prompt payment of the invoice?
A) cash
B) trade
C) quantity
D) functional

Accepted Answer

Prompt payment discount is commonly known as cash discount. It is a reduction in the list price given to the customer as an incentive to pay their invoices early or on time.

Question 9

How would the terms be stated if a business was offering a cash discount of 5 percent if consumers pay the invoice within 30 days with the full face amount of the invoice due 30 days after that?
A) 5/30, net 60
B) 5/60, net 90
C) 5/15, net 45
D) 10/30, net 60

Accepted Answer

The terms indicate a cash discount of 5 percent if payment is made within 30 days, and the payment is due in full 30 days after that. This is represented as "5/30" (5% discount for payment within 30 days) and "net 60" (full payment due 60 days after invoice date).

Question 10

A retailer is considering expanding to a second location.Which of the following might the retailer use in a breakeven analysis to examine the sales level needed to achieve expansion?
A) a marginal analysis
B) a breakeven point
C) a demand curve
D) a target return

Accepted Answer

The answer of A retailer is considering expanding to a...

Question 11

What is a theatre practising when they lower prices in the afternoon to offset low demand and raise prices in the evening when demand rises?
A) modified breakeven analysis
B) yield management
C) exploitation of the local theatre-goers
D) marginal pricing

Accepted Answer

This practice is an example of yield management, which involves adjusting prices in response to changes in demand. By lowering prices during low-demand times (afternoon) and raising them during high-demand times (evening), the theatre is able to maximize revenue and optimize seat occupancy. This is a common practice in the entertainment industry, as well as in industries such as airlines and hotels.

Question 12

What is the pricing strategy that offers prices that are consistently lower than those of competitors?
A) penetration
B) skimming
C) everyday low
D) competitive

Accepted Answer

The pricing strategy that offers prices that are consistently lower than those of competitors is known as everyday low pricing. This strategy aims to attract price-sensitive customers and maintain a competitive edge in the market. Penetration pricing involves setting low initial prices to gain market share, skimming pricing involves setting high initial prices to target early adopters or high value customers, and competitive pricing involves adjusting prices to match or beat competitors' prices.

Question 13

What is penetration pricing sometimes referred to as?
A) market-plus pricing
B) market-minus pricing
C) cost-plus pricing
D) prestige pricing

Accepted Answer

Penetration pricing is sometimes referred to as market-minus pricing because it involves setting a low price to enter a competitive market and attract customers.

Question 14

What type of price is normally quoted to potential buyers before any discounts or allowances are allowed?
A) the unit price
B) the list price
C) the cash price
D) the trade price

Accepted Answer

The list price is normally quoted to potential buyers before any discounts or allowances are allowed. This is the price that the seller recommends for the product or service before negotiation.

Question 15

Which of the following is NOT an advantage of skimming pricing?
A) It allows a manufacturer to quickly recover its research and development costs.
B) It allows marketers to control demand at certain points in the introductory stages of a product`s life cycle.
C) Potential competitors see innovative firms reaping large financial returns and decide to enter the market.
D) It is a useful tool for setting a market entry price when there is little or no competition.

Accepted Answer

Potential competitors seeing high profits may actually deter them from entering the market, rather than encourage them to join. Therefore, this is not an advantage of skimming pricing.

Question 16

What type of discount is given off the list price for large-volume purchases?
A) cash
B) trade
C) quantity
D) functional

Accepted Answer

A quantity discount is typically given off the list price for large orders, as an incentive for customers to buy in bulk. Cash discounts are given for prompt payment, while trade discounts are given to specific industry professionals. Functional discounts are given based on the location or function of the customer, rather than the volume of purchase.

Question 17

When General Motors introduced the Saturn, it priced the SL sports sedan at $2000 less than the Toyota Corolla DLX and $1500 less than comparable Nissan and Honda automobiles.What pricing strategy is this an example of?
A) skimming
B) loss-leader
C) competitive
D) penetration

Accepted Answer

This is an example of penetration pricing, where a product is priced lower than competitors' prices in order to gain market share.

Question 18

A five-pound bag of roasted peanuts sells for $8, and the average variable costs are $4 per bag.What is the breakeven point in bags if the total fixed costs for the roasted peanuts are $80 000?
A) 20 000
B) 40 000
C) 80 000
D) 120 000

Accepted Answer

Breakeven point = Total fixed costs / (Selling price per unit - Average variable cost per unit)= 80,000 / (8 - 4)= 80,000 / 4= 20,000 bags

Question 19

What makes up a product's market price?
A) It is the same as the product's list price.
B) It is the list price less any allowances and discounts that may be involved in the purchase.
C) It is the list price less any discounts and allowances plus geographic considerations.
D) It is the price that consumers pay using a credit card.

Accepted Answer

The answer of What makes up a product's market price?
A)...

Question 20

Which of the following pricing strategies tries to remove price as a strategic weapon?
A) penetration pricing
B) everyday low pricing
C) skimming pricing
D) competitive pricing

Accepted Answer

The answer of Which of the following pricing strategies tries...

Quiz 16: Pricing Concepts and Strategies

What is it called when a manufacturer offers an intermediary a percentage discount off the list price of products it handles in exchange for performing certain wholesaling activities?

What is the skimming pricing strategy sometimes referred to as?

A product is priced to sell for $12 with average variable costs of $8.The company expects to earn a profit of $400 000 with its total fixed costs of $120 000.What is the minimum number of units that must be sold in order to reach this target return?

In order to recover research and development costs rapidly and earn initial high profits, Sony set a high price for its plasma TVs.What is the pricing strategy Sony used?

What should customers submit to the creditor if they want to take the discount on an invoice for $300 dated April 1 with terms of 3/10 net 30?

What type of demand for a product would penetration pricing work BEST for?

Which of the following is NOT a characteristic of everyday low pricing?

What type of discount is given off the list price for prompt payment of the invoice?

How would the terms be stated if a business was offering a cash discount of 5 percent if consumers pay the invoice within 30 days with the full face amount of the invoice due 30 days after that?

A retailer is considering expanding to a second location.Which of the following might the retailer use in a breakeven analysis to examine the sales level needed to achieve expansion?

What is a theatre practising when they lower prices in the afternoon to offset low demand and raise prices in the evening when demand rises?

What is the pricing strategy that offers prices that are consistently lower than those of competitors?

What is penetration pricing sometimes referred to as?

What type of price is normally quoted to potential buyers before any discounts or allowances are allowed?

Which of the following is NOT an advantage of skimming pricing?

What type of discount is given off the list price for large-volume purchases?

When General Motors introduced the Saturn, it priced the SL sports sedan at $2000 less than the Toyota Corolla DLX and $1500 less than comparable Nissan and Honda automobiles.What pricing strategy is this an example of?

A five-pound bag of roasted peanuts sells for $8, and the average variable costs are $4 per bag.What is the breakeven point in bags if the total fixed costs for the roasted peanuts are $80 000?

What makes up a product's market price?

Which of the following pricing strategies tries to remove price as a strategic weapon?