Question 1

The break-even volume is the point at which ________.
A) the total revenue and total cost curves intersect
B) demand equals supply
C) the production of one more unit will not lead to increase in demand
D) the company can pay off all its long-term debt
E) a firm exceeds the sales forecast

Accepted Answer

The break-even volume is the point at which total revenue and total cost curves intersect. This means that the company is generating enough revenue to cover all of its expenses and is not making a profit or a loss at this point.

Question 2

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

Accepted Answer

Customer perceptions of the product's value actually set the ceiling for prices, not the floor. The floor is determined by the cost to produce the product.

Question 3

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 is because consumers are willing to pay a premium for a product that they believe is superior to other similar products.

Question 4

Product costs set the ceiling for prices.

Accepted Answer

Product costs help determine the minimum price at which a product can be sold to cover its costs, but market demand and perceived value often set the ceiling for prices.

Question 5

John assured his venture capitalists an earning of 25-percent return on equity when he began his IT startup. In order to achieve this result, he will most likely use which of the following pricing approaches?
A) value-based pricing
B) markup pricing
C) EDLP
D) customer-based pricing
E) target return pricing

Accepted Answer

The pricing approach that John is most likely to use to achieve his target return of a 25-percent return on equity is target return pricing. Target return pricing is a pricing strategy that sets prices based on the desired rate of return on investment or equity. This approach is often used by businesses in order to achieve a specific profit level. In this case, John's desired rate of return is 25%, so he will use target return pricing to determine the price that will allow him to achieve this return.

Question 6

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 for calculating break-even volume is:
Break-even volume = Fixed costs / (Price – Variable costs)
We know the fixed cost and break-even volume, so we can calculate the price with the given variable cost:
50,000 = 100,000 / (Price - $10)
Price - $10 = $2
Price = $12
Therefore, the manufacturer's unit cost should be $12 in order to break even.

Question 7

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 8

Why is markup pricing most likely popular?
A) Sellers are more certain about demand than about costs.
B) Markup pricing tends to maximize market competition.
C) Markup pricing affords buyers greater bargaining power.
D) Sellers do not need to make frequent adjustments as demand changes.
E) Markup pricing is designed to set prices to break even on the costs of making and marketing a product.

Accepted Answer

Markup pricing allows sellers to maintain a consistent profit margin over costs without needing to frequently adjust prices as demand fluctuates, simplifying pricing strategy and financial planning.

Question 9

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.
-Which of these is NOT a way in which pricing can accomplish company objectives?
A) set prices to attract new customers and retain existing customers
B) raise prices to create excitement for a brand
C) set prices low to hinder competition from entering the market
D) price one product to help sales of other products in the company's line
E) set price to keep the loyalty of resellers

Accepted Answer

Raising prices would not typically accomplish company objectives, as it could potentially drive away customers and hinder sales. Additionally, creating excitement for a brand can be accomplished through other marketing strategies, such as advertising and promotions, without raising prices.

Question 10

Which of the following statements about break-even analysis is true?
A) It is used to determine how much production experience a company must have in order to achieve desired efficiencies.
B) It is a technique used to calculate fixed costs.
C) It determines the amount of retained earnings a company will have during a given accounting period.
D) It is a technique marketers use to determine the relationship between supply and demand.
E) It is calculated by using variable costs, the unit price, and fixed costs.

Accepted Answer

Break-even analysis is a technique used to determine the point at which a company's revenue equals its total costs, thus it helps in understanding the minimum amount of sales needed to cover all expenses. This point can be calculated by using the variable costs, unit price, and fixed costs. Option A and D are incorrect as they do not describe break-even analysis. Option B is incorrect as break-even analysis is not used to calculate fixed costs but rather to use them in the calculation. Option C is also incorrect as it does not relate to break-even analysis.

Question 11

Target return pricing is a variation of which of the following cost-oriented pricing approaches?
A) cost-plus pricing
B) break-even pricing
C) markup pricing
D) value-based pricing
E) fixed cost pricing

Accepted Answer

The answer of Target return pricing is a variation of...

Question 12

Target return pricing uses the concept of a(n) ________, which shows the total cost and total revenue expected at different sales volume levels.
A) BCG matrix
B) break-even chart
C) SWOT analysis
D) demand curve
E) experience curve

Accepted Answer

Target return pricing involves setting a price that will allow a firm to earn a desired profit margin. To determine this price, a break-even analysis is typically conducted, which shows the sales volume required to cover all costs and generate the desired level of profit. This analysis is depicted on a break-even chart, which shows the total cost and total revenue expected at different sales levels. Therefore, choice B, break-even chart, is the correct answer.

Question 13

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

The break-even point in units can be calculated using the formula: Break-even point = Fixed Costs / (Selling Price per Unit - Variable Cost per Unit). Plugging in the given values: $100,000 / ($12 - $8) = $100,000 / $4 = 25,000 units.

Question 14

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 about the line workers knowing each product indicates that Alden Manufacturing benefits from the experience curve, which involves gaining efficiency and lowering costs over time as workers become more experienced and production processes become more streamlined. Cost-plus pricing and value-added pricing are not mentioned in the scenario. There is no information provided about the elasticity or derived demand in the market.

Question 15

Samsung Mobile plans to launch a new phone with a unit cost of $270 and wants to earn a 10 percent markup on its sales. Samsung's markup price is ________.
A) $275
B) $280
C) $295
D) $300
E) $335

Accepted Answer

The answer of Samsung Mobile plans to launch a new...

Question 16

Why is markup pricing most likely impractical?
A) Calculating costs is complicated due to fluctuations.
B) By tying the price to cost, sellers oversimplify pricing.
C) When all firms in the industry use this pricing method, prices tend to be similar.
D) The method ignores demand and competitor prices.
E) With a standard markup, consumers know when they are being overcharged.

Accepted Answer

Markup pricing ignores demand and competitor prices, which can result in prices that are too high or too low compared to the market. This can lead to lost sales if prices are too high or lost profits if prices are too low. In addition, if all firms in the industry use this pricing method, prices tend to be similar, which can make it difficult for individual firms to differentiate themselves from competitors. Therefore, markup pricing is most likely impractical in today's competitive markets.

Question 17

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. The other options are not directly related to considering competitors when setting prices.

Question 18

When performing a break-even analysis, the manufacturer should consider all of the following EXCEPT ________.
A) probable demand
B) likely profits
C) competitors' pricing
D) estimated break-even volumes
E) different prices

Accepted Answer

The answer of When performing a break-even analysis, the manufacturer...

Question 19

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

Increasing the price can lead to a lower break-even volume because the company needs to sell fewer units to cover its fixed and variable costs.

Question 20

Which of the following is a cost-based approach to pricing?
A) value-based pricing
B) high-low pricing
C) target return pricing
D) good value pricing
E) EDLP

Accepted Answer

Target return pricing is a cost-based approach to pricing where the price of a product or service is set based on the desired profit margin. The seller calculates the total cost of production and then adds a markup for profit. The resulting price is then compared to the target return on investment to determine if it is acceptable.

Quiz 10: Pricing: Understanding and Capturing Customer Value

The break-even volume is the point at which ________.

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

Companies can legitimately charge a higher price if ________.

Product costs set the ceiling for prices.

John assured his venture capitalists an earning of 25-percent return on equity when he began his IT startup. In order to achieve this result, he will most likely use which of the following pricing approaches?

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?

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?

Why is markup pricing most likely popular?

Which of the following statements about break-even analysis is true?

Target return pricing is a variation of which of the following cost-oriented pricing approaches?

Target return pricing uses the concept of a(n) ________, which shows the total cost and total revenue expected at different sales volume levels.

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?

Samsung Mobile plans to launch a new phone with a unit cost of $270 and wants to earn a 10 percent markup on its sales. Samsung's markup price is ________.

Why is markup pricing most likely impractical?

Which of the following involves setting prices based on a rival firm's strategies, costs, prices, and market offerings?

When performing a break-even analysis, the manufacturer should consider all of the following EXCEPT ________.

As a manufacturer increases the price, ________.

Which of the following is a cost-based approach to pricing?