Question 1

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 2

Department stores that practice everyday low pricing typically provide frequent sale days, early-bird savings, and bonus earnings for store credit-card holders.

Accepted Answer

Department stores that practice everyday low pricing do not typically provide frequent sale days, early-bird savings, or bonus earnings for store credit-card holders. Instead, they offer consistent low prices on their products without relying on sales or promotions.

Question 3

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 formula to calculate the break-even point is:
Break-even volume = Fixed cost / (Price per unit - Variable cost per unit)
Substituting the given values, we get:
50,000 = 100,000 / (Price per unit - 10)
Price per unit - 10 = 2
Price per unit = $12.

Therefore, the manufacturer's unit cost should be $12 in order to break even.

Question 4

Markup pricing is popular because when all firms in the industry use this pricing method, prices tend to be similar, so price competition is minimized.

Accepted Answer

Markup pricing ensures that prices are similar across firms using the method, as they all add a certain percentage to the cost of the product. This reduces price competition as prices are not significantly different.

Question 5

Product costs set the ceiling for prices.

Accepted Answer

The answer of Product costs set the ceiling for prices....

Question 6

The simplest pricing method is cost-plus pricing, which involves adding a standard markup to the cost of the product.

Accepted Answer

Cost-plus pricing adds a standard markup to the cost of the product, making it the simplest pricing method. This markup can be a percentage or a fixed amount.

Question 7

Average cost tends to increase with accumulated production experience.

Accepted Answer

The statement is opposite to the concept of learning curve, which states that as production experience accumulates, average cost tends to decrease.

Question 8

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 calculate the break-even point, we need to find out how many units the company needs to sell to generate enough revenue to cover both fixed and variable costs.

Let x be the number of units the company needs to produce and sell to break even.

Total cost = Fixed cost + Variable cost 
Total revenue = Selling price x Number of units sold

At the break-even point, total cost = total revenue

Therefore:

100,000 + 8x = 12x

4x = 100,000

x = 25,000

Thus, the company needs to produce and sell 25,000 units to break even.

Question 9

Using value-based pricing, a marketer would not design a product and marketing program before setting the price.

Accepted Answer

Value-based pricing starts with understanding the customer's perceived value of the product or service, and then designing the product and marketing program to match that value. Therefore, the price is set first and then the product and marketing program are adjusted accordingly.

Question 10

Customer perceptions of the product's value set the floor for prices.

Accepted Answer

The answer of Customer perceptions of the product's value set...

Question 11

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 12

Refer to the scenario below to answer the following question(s).
Alden Manufacturing produces small kitchen appliances-blenders, hand mixers, and electric skillets-under the brand name First Generation. Alden attempts to target newlyweds and first-time home buyers with this brand.
Considering that most young households have limited financial resources, Alden attempts to engage in target costing. "In doing this," says Milt Alden, the co-founder of Alden Electronics, "we have better control over keeping price right in line with customers."
Alden manufactures a three-speed blender, its top seller, along with a five-speed blender. The hand mixers are manufactured in two variants-a small handheld mixer with two rotating beaters and another that comes with an optional stand and an attached mixing bowl. Alden's temperature-controlled skillets are manufactured in a single style with three color options.
"Our product offerings are narrower," Milt Alden added, "but our line workers know each product like the back of their hands. This allows us to produce superior products while holding our prices low.
-Milt Alden says that his line workers "know each product like the back of their hands," and that this knowledge helps the company keep its prices low. This indicates that Alden Manufacturing most likely benefits from the ________.
A) cost-plus pricing
B) value-added pricing
C) experience curve
D) inelastic demand in the market
E) derived demand in the market

Accepted Answer

The statement "know each product like the back of their hands" indicates that Alden's line workers have gained experience and expertise in producing the products. This expertise and experience allows the company to benefit from the experience curve, which is a reduction in unit costs as cumulative production increases due to increased efficiency and knowledge. Therefore, C is the best choice.

Question 13

Value-based pricing uses the sellers' perception of value as the key to pricing.

Accepted Answer

The answer of Value-based pricing uses the sellers' perception of...

Question 14

Cost-based pricing is often product driven.

Accepted Answer

Cost-based pricing involves determining the cost of producing a product and adding a markup to determine the selling price. This approach is primarily driven by the product's cost rather than external factors such as market demand or competition.

Question 15

Cost-based pricing involves setting prices based on consumer perception of value.

Accepted Answer

Cost-based pricing involves setting prices based on the cost of production, while value-based pricing involves setting prices based on consumer perception of value.

Question 16

In customer value-based pricing, price is considered along with all other marketing mix variables before the marketing program is set.

Accepted Answer

Customer value-based pricing takes into account the value that a product or service provides to its customers and prices accordingly, while also considering the other elements of the marketing mix such as product, promotion, and place. Therefore, price is considered along with all other marketing mix variables before the marketing program is set.

Question 17

Companies can legitimately charge a higher price if ________.
A) consumers perceive that the company's product offers greater value
B) the demand for products manufactured by a firm is highly elastic
C) the cost of advertising is minimal
D) derived demand remains constant
E) consumers de-emphasize quality

Accepted Answer

Companies can charge a higher price if consumers perceive that the company's product offers greater value. This means that consumers are willing to pay more for the product because they believe they are getting a better quality or more desirable product. This is often the result of effective branding and marketing, as well as a track record of delivering high-quality products or services.

Question 18

A downward-sloping experience curve is indicative of a company's rapidly increasing production costs.

Accepted Answer

A downward-sloping experience curve indicates that production costs are decreasing as production volumes increase. This is due to the benefits from learning and economies of scale.

Question 19

Which of the following involves setting prices based on a rival firm's strategies, costs, prices, and market offerings?
A) target return pricing
B) good-value pricing
C) competitor value-added pricing
D) market-based pricing
E) competition-based pricing

Accepted Answer

Competition-based pricing involves setting prices based on a rival firm's strategies, costs, prices, and market offerings. This strategy aims to position a business competitively, but it may not always result in the best value for customers.

Question 20

Overhead costs are costs that do not vary with production or sales level.

Accepted Answer

Overhead costs are fixed costs which do not change with variations in production or sales levels. They include expenses such as rent, utilities, salaries of non-production employees, and depreciation of fixed assets.

Quiz 10: Pricing: Understanding and Capturing Customer Value

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?