Question 1

A business that has a gaming console intended to compete directly with Sony's PlayStation gaming console would likely use a _____ pricing strategy.

Accepted Answer

A follow-the-leader pricing strategy is when a business sets its prices based on the prices of its competitors. This is a common strategy for businesses that are entering a new market or that are trying to compete with a larger, more established business.

Question 2

Hillary wants to purchase a refrigerator on credit. If she uses an installment plan, which of the following is most likely to occur?

Accepted Answer

When using an installment plan, it is common for a down payment to be required. This helps to reduce the amount being financed and minimize the risk for the lender. Discounted prices or tax exemptions are not guaranteed and finance charges may vary depending on the specific terms of the loan.

Question 3

Richard is an independent contractor and buys materials from a local builders supply store. He takes possession of the products immediately and the store bills him at the end of the month. The store is providing a(n)

Accepted Answer

Richard is receiving an open charge account because he can take possession of the products immediately and is billed at the end of the month. Installment accounts involve payments made over a certain period of time, while revolving accounts involve ongoing credit that can be paid off or used indefinitely. There is no such thing as a selective account.

Question 4

Stone Creek Farm sells a special type of hay to horse owners. If the farm allows its customers to have hay delivered and then be billed at a later date, it would be using which of the following types of account?

Accepted Answer

An open charge account allows customers to make purchases and be billed later, often with a set payment due date. This is the most common type of account for businesses that offer delayed billing options. Installment accounts typically involve a set payment plan over a fixed period of time, while revolving charge accounts allow customers to make purchases on credit and make payments over time with interest. A selective account does not exist as a recognized type of credit account.

Question 5

Buying on credit _____ the amount of working capital needed by the business doing the buying.

Accepted Answer

Buying on credit decreases the amount of working capital needed immediately by a business, as it allows the business to acquire goods or services without an immediate outlay of cash, thus preserving its working capital for other uses.

Question 6

Demand for a product typically _____ as price _____.

Accepted Answer

Demand for a product typically decreases as price increases. This is because consumers are less likely to buy a product if it is too expensive.

Question 7

For a price lining strategy, a company's inventory levels for each line will depend directly on the _____ of the customers.

Accepted Answer

Price lining strategy involves offering different prices for different product lines to attract customers of different buying desires and income levels. Therefore, the inventory levels for each line will depend directly on the buying desires and income level of the customers.

Question 8

Chocolate Concoctions, a maker of high-end chocolate candies, decided to price its boxes of candies below the long-term market price. The decision was made to increase market share and discourage other firms from entering the chocolate market. Chocolate Concoctions was implementing a

Accepted Answer

Chocolate Concoctions is using a penetration pricing strategy by pricing their boxes of candies below the long-term market price in order to gain market share and discourage competition. This strategy involves setting a low price to enter a market and gradually increasing the price over time.

Question 9

Lorrie Veasey, owner of All That Swag, used discount coupons for special event items to drive customers to her retail stores. Using such promotions and stating that "the regular price is never chiseled in stone" would indicate Lorrie is using a

Accepted Answer

Lorrie Veasey is using a variable pricing strategy by offering discounts through special event items and stating that regular prices are not fixed. This allows her to adjust prices according to demand and increase sales during specific promotional periods.

Question 10

Which of the following "C's" defines the customer's ability to conserve assets?

Accepted Answer

Capacity refers to the borrower's ability to repay a loan, including their ability to conserve assets. It takes into account factors such as income, expenses, and existing debt. Character refers to the borrower's credit history and reputation, collateral refers to property pledged as security for a loan, and conditions refer to external factors that may affect the borrower's ability to repay the loan.

Question 11

Retro Hits, a local band covering songs from the 1980s and 1990s, decided they wanted to expand to more college students. Research showed students thought the current $25 ticket price was too high for a local band. To strengthen ticket demand, Retro Hits began offering $15 tickets to all fans who checked in on Facebook. The band was using a

Accepted Answer

Retro Hits is using a variable pricing strategy by offering a discount to those who check in on Facebook. This allows the band to adjust their pricing based on demand and target specific segments of the market, in this case college students.

Question 12

Credit cards are usually based on a(n) _____ account system.

Accepted Answer

Credit cards typically operate on a revolving charge system, which allows the cardholder to carry a balance from month to month and make minimum payments. This is different from an installment account system, in which the borrower repays a fixed amount over a period of time until the loan is fully paid off. Open charge and selective account systems are not common types of credit card accounts.

Question 13

Within the framework of a break-even analysis, an examination of _____ is conducted to determine the quantity at which the product, with an assumed price, will generate enough revenue to start earning a profit.

Accepted Answer

Break-even analysis involves examining both costs (fixed and variable) and revenue to determine the point at which sales will cover all costs, leading to no profit or loss.

Question 14

Zemann's, a large firm selling custodial supplies to other businesses, has decided to begin offering trade credit. Its major objective in granting credit is

Accepted Answer

The major objective of offering trade credit is to make sales. By allowing customers to purchase goods on credit, businesses can increase sales and revenue.

Question 15

Troy Bourbon, a local bourbon distillery, initially sold its product at a premium price of $45 because the company believed consumers would view the bourbon as a prestige item. The company decided that when startup costs had been fully recovered and competition became imminent, the company would reduce the price to $30 which was more expected in the market. The distillery is using a

Accepted Answer

Troy Bourbon is using a price skimming strategy, which involves setting a high price initially and then lowering the price over time as the market evolves and competition increases. This approach is often used to recover startup costs quickly and to take advantage of the product's novelty and lack of competition at the outset.

Question 16

Golf Global Company sells 1,000 shirts annually at a price of $35 each. If the company's pricing policies adhere to a 40 percent markup of selling price, the cost of each shirt is

Accepted Answer

The cost of each shirt is calculated by subtracting the markup percentage from 100% and then applying that percentage to the selling price. A 40% markup on selling price means the cost represents 60% (100% - 40%) of the selling price. Therefore, the cost is 60% of $35, which is $21 ($35 * 0.6 = $21).

Question 17

Tick Tock, a small retailer of a quality alarm clock, sells its product based on a 35 percent markup of cost. If the firm's product costs are approximately $133, what is the selling price?

Accepted Answer

Markup percent = (selling price - cost)/cost * 100%
35% = (selling price - $133)/$133 * 100%
Solving for selling price, we get:
selling price = $180.55
Rounding to the nearest dollar gives us a selling price of $180. Therefore, the best choice is (C).

Question 18

Fine Framings, a small framing shop, uses markup pricing to arrive at a final selling price. The firm sells its frames at a price of $25, given a $15 unit cost. Fine Framings' markup on the selling price is _____, and its markup on cost is _____.

Accepted Answer

To calculate the markup on the selling price, we use the formula:
Markup on Selling Price = (Selling Price - Cost) / Selling Price
Here, Selling Price = $25 and cost = $15
So, Markup on Selling Price = (25 - 15) / 25 = 0.4 or 40%
To calculate the markup on cost, we use the formula:
Markup on Cost = (Selling Price - Cost) / Cost
Here, Selling Price = $25 and cost = $15
So, Markup on Cost = (25 - 15) / 15 = 1.67 or 167%
Therefore, the best choice is B, where the markup on the selling price is 40% and the markup on cost is 66 2/3%.

Question 19

Walmart grants credit to consumers who purchase for personal or family use. This type of credit is called

Accepted Answer

Walmart grants credit to consumers for personal or family use, which is known as consumer credit. Trade credit is granted to businesses for purchasing goods and services, while open credit is a type of credit line that can be used for multiple purchases. Personal credit is a general term that can refer to any type of credit used by an individual.

Question 20

Tanya would like to gain market share rapidly so she has priced her product at a lower than normal, long-range market price. Which of the following strategies is Tanya using?

Accepted Answer

Tanya is using the strategy of penetration pricing, which involves setting a low price to gain market share quickly. This is different from price skimming, which involves setting a high price initially and then gradually lowering it over time. Variable pricing involves adjusting prices based on different factors such as time of day or demand, while price lining involves offering products at different price points based on their features or quality.

Quiz 16: Pricing and Credit Decisions