Deck 13: Pricing and Costs

Question 1

A manager is setting the price of a product. He is considering either using a 12% sales margin or 15% cost mark-up method. What would the selling price be, if his cost of sales is £45?

A) £50.40 margin or £51.75 mark-up
B) £51.14 margin or £52.94 mark-up
C) £50.40 margin or 52.94 mark-up
D) £51.14 margin or £51.75 mark-up

Answer 1

D

Question 2

A camera will be priced at £300. What will its target cost of sales need to be if the retailer takes a 40% sales margin and the manufacturer, a 30% sales margin?

A) £90.00
B) £36.00
C) £126.00
D) £164.83

Answer 2

C

Question 3

What is the best definition of a price skimming strategy?

A) Sets prices high to take advantage of customers not being sensitive to prices
B) Sets prices to undercut the nearest competitor
C) Sets prices low to take advantage of customers being sensitive to prices
D) Set prices low to achieve high sales volumes

Answer 3

A

Question 4

What is price elasticity?

A) When a range of prices is set for one product
B) When customers are insensitive to how high or low a selling price is set
C) When customers are sensitive to how high or low a selling price is set
D) When products have strong branding

Question 5

A drinks factory has spare capacity and is considering taking on a special order of 50,000 bottles. It usually charges 54p per bottle to recover its overheads. If its variable costs are £6.80 and it will incur distribution costs of £300 for every 1,000 bottles, what is the minimum price it should charge?

A) £6.80
B) £7.34
C) £7.64
D) £7.10

Question 6

What is the best definition of a penetrating price strategy?

A) Sets prices low to take advantage of customers being sensitive to prices
B) Sets prices low to take advantage of customers being insensitive to prices
C) Sets prices high to take advantage of inelastic prices
D) Sets prices high to take advantage of brand loyalty

Question 7

When applying life-cycle costing in setting prices, what factors need to be taken into account?

A) Manufacturing costs, excluding marketing, research costs
B) Pre-manufacturing and post-manufacturing costs, including research costs
C) Manufacturing and post-manufacturing costs, including marketing
D) Pre-manufacturing, manufacturing and post-manufacturing costs

Question 8

What is the most appropriate definition of target costing?

A) A budget cost for a product once the product design has been agreed
B) A cost allowance set by the marketing department for the production team
C) The difference between the selling price less the desired profit estimated before it is manufactured
D) The competitors' cost, which the design team is attempting to match

Question 9

A company has two divisions: one making components and the other electrical goods. The component division sells a heating ring to the electrical goods division to make kettles but this division can buy a similar component from an outside supplier for £12. The costs of a heating ring made by the component division include a variable cost of £8 and an allocation of overhead costs of £5.
If there is spare capacity in the component division, what should the transfer price be?

A) Below £12
B) Above £8
C) Between £12 and £8
D) Above £12

Question 10

A company has two divisions: one making components and the other electrical goods. The component division sells a heating ring to the electrical goods division to make kettles but this division can buy a similar component from an outside supplier for £12. The costs of a heating ring made by the component division include a variable cost of is £8 and an allocation of overhead costs of £5.
If the component division is operating at full capacity and can sell the heating ring to an external customer, what should the transfer price be?

A) Above the market price of the electrical division's supplier
B) Above the market price of the component division's customer and below the market price of the electrical division's supplier
C) Below the market price of the electrical division's supplier
D) Below the market price of the component division's customer