Question 1

Setting an annual target of a specific dollar volume of profit is referred to as
A) target profit pricing.
B) target return-on-investment pricing.
C) loss-leader pricing.
D) at-, above-, or below-market pricing.
E) yield management pricing.

Accepted Answer

The answer of Setting an annual target of a specific...

Question 2

Lady Marion Seafood, Inc., sells five-pound packages of Alaskan salmon. Assume that its unit variable cost per package is $30 and its fixed cost is $250,000. It wants a target profit of $38,000 based on a volume of 16,000 packages. What should the firm charge for a five-pound package of salmon?
A) $25.00
B) $33.94
C) $40.00
D) $48.00
E) $61.25

Accepted Answer

The answer of Lady Marion Seafood, Inc., sells five-pound packages...

Question 3

Which of the following is a profit-oriented approach to pricing?
A) penetration pricing
B) target pricing
C) loss-leader pricing
D) target return-on-investment pricing
E) standard markup pricing

Accepted Answer

Target return-on-investment pricing is a profit-oriented approach as it focuses on achieving a specific return on investment.

Question 4

All of the following are profit-oriented approaches to select an approximate price level except which?
A) target ROI pricing
B) target profit pricing
C) target return-on-sales pricing
D) target return-on-investment pricing
E) cost-plus-percentage-of-cost pricing

Accepted Answer

Cost-plus-percentage-of-cost pricing is a cost-oriented approach and not profit-oriented.

Question 5

Which of the following companies would be most likely to use target return-on-investment pricing?
A) a farmer
B) a supermarket chain
C) an engineering firm
D) a veterinarian
E) an automobile manufacturer

Accepted Answer

An automobile manufacturer is likely to use target return-on-investment pricing because it involves significant capital investment and long-term financial planning, making it important to ensure a specific return on investment.

Question 6

Setting a price to achieve a profit that is a specified percentage of the sales volume is referred to as
A) target return-on-investment pricing.
B) target return-on-sales pricing.
C) loss-leader pricing.
D) target pricing.
E) standard markup pricing.

Accepted Answer

Target return-on-sales pricing involves setting a price that will result in a profit that is a specified percentage of the sales volume. This approach focuses on achieving a certain level of profitability based on the revenue generated from sales, rather than the amount invested in the product or service.

Question 7

A critical assumption when using target profit pricing is that
A) a higher average price will not cause the demand for a product to fall.
B) a higher average price will cause new competitors to join the industry.
C) a higher average price will be offset by reductions in manufacturing costs.
D) profit is tied to the current value of the dollar in relation to foreign currencies.
E) any price increase will be followed quickly by similar moves from all of your competitors.

Accepted Answer

Target profit pricing assumes that a higher average price will not cause the demand for a product to fall, which means that customers are willing to pay the higher price without shifting to a substitute product or choosing a competitor's product.

Question 8

The most commonly used pricing method for business products is
A) target return on investment.
B) customary.
C) standard markup.
D) target profit.
E) cost-plus pricing.

Accepted Answer

Cost-plus pricing is the most commonly used pricing method for business products. This is because it ensures that all costs incurred in producing and selling a product are covered, and a profit margin is added on top. The markup percentage is typically higher for business products, as they have a higher value and require more resources to produce and market.

Question 9

The owner of a store that sells custom kitchen cabinets wishes to use a target return-on-sales pricing approach to establish a price for a typical section of cabinets. Assume that variable costs total $200 per unit, fixed cost is $44,000, and the storeowner desires a target profit of 20 percent return on sales at an annual volume of 400 cabinets. What price should be charged for a typical cabinet section?
A) $263.50
B) $311.00
C) $387.50
D) $445.50
E) $775.00

Accepted Answer

First, we need to calculate the total cost and the desired profit. 
Variable cost per unit: $200
Fixed cost: $44,000
Target profit: 20% of sales
Annual volume: 400 units

Total cost = (Variable cost per unit x Annual volume) + Fixed cost
Total cost = ($200 x 400) + $44,000
Total cost = $124,000

Desired profit = Total cost x Target profit
Desired profit = $124,000 x 0.2
Desired profit = $24,800

Now, we can calculate the price using the target return-on-sales pricing approach:
Price = (Total cost + Desired profit) / Annual volume
Price = ($124,000 + $24,800) / 400
Price = $387.50

Therefore, the price for a typical section of cabinets should be $387.50.

Question 10

Architectural firms that specialize in designing and constructing one-of-a-kind custom buildings such as the Rock and Roll Hall of Fame often use which pricing strategy?
A) cost-plus pricing
B) experience curve pricing
C) standard markup pricing
D) yield management pricing
E) price lining

Accepted Answer

Architectural firms that specialize in designing and constructing one-of-a-kind custom buildings often use cost-plus pricing strategy. This strategy involves adding a markup to the total costs of labor, material, and overhead expenses to determine the final price charged to the customer. Since each project is unique and requires custom solutions, it is difficult to determine the pricing using other strategies which involve setting prices based on market prices or competition. Cost-plus pricing allows the firm to ensure that they cover their expenses and make a profit while providing customized solutions for their clients.

Question 11

The Brazilian government wants to build a global positioning satellite (GPS) system. The satellite manufacturer will receive a mutually agreed upon profit over and above all costs associated with the project. The pricing approach the satellite manufacturer uses is called
A) standard markup pricing.
B) experience curve pricing.
C) cost-plus-percentage-of-cost pricing.
D) cost-plus-fixed-fee pricing.
E) bundle pricing.

Accepted Answer

The pricing approach described in the scenario is cost-plus-fixed-fee pricing, where the manufacturer receives a fee or profit over and above the costs associated with the project. This approach is commonly used in government contracts, where the contractor is reimbursed for all costs incurred during the project and receives a fixed fee on top of that.

Question 12

Rather than billing clients by the hour, some lawyers and their clients agree on a fixed fee based on expected costs plus an agreed upon level of profit for the law firm. Which pricing approach are they using?
A) target pricing
B) cost-plus pricing
C) customary pricing
D) experience curve pricing
E) bundle pricing

Accepted Answer

The pricing approach being used is cost-plus pricing, where the fixed fee is based on expected costs plus an agreed upon level of profit for the law firm. Target pricing involves setting a price based on the perceived value to the customer, customary pricing involves setting a price based on industry standards, experience curve pricing involves reducing the price as experience is gained, and bundle pricing involves offering multiple products or services as a package deal.

Question 13

What profit-oriented pricing method is often used because of the difficulty in establishing a benchmark of sales or investment to show how much of a firm's effort is needed to achieve the target?
A) target return-on-investment pricing
B) target return-on-sales pricing
C) standard markup pricing
D) target profit pricing
E) loss-leader pricing

Accepted Answer

The answer of What profit-oriented pricing method is often used...

Question 14

Target return-on-investment (ROI) is frequently used by
A) contractors.
B) public utilities.
C) business-to-business markets.
D) supermarkets.
E) small privately owned firms.

Accepted Answer

The answer of Target return-on-investment (ROI) is frequently used by
A)...

Question 15

Setting a price to achieve an annual target return-on-investment (ROI) is referred to as
A) target return-on-investment pricing.
B) target return-on-profit pricing.
C) target return-on-sales pricing.
D) target profit pricing.
E) customary pricing.

Accepted Answer

Target return-on-investment pricing is the pricing strategy where a business sets a price to achieve a desired ROI based on their investment in a particular product or service. This strategy takes into account the costs of production, marketing, and other expenses and determines the necessary price to achieve a specific ROI. It is different from target profit pricing, which sets a price to achieve a specific profit margin without considering the investment made.

Question 16

A custom tailor wishes to use target profit pricing to establish a price for a custom-designed business suit. Assume variable cost is $200 per suit, fixed cost is $44,000, and the target profit is $50,000 based on a volume of 50 suits. What price should be charged for a typical custom suit?
A) $520
B) $1,040
C) $1,880
D) $2,080
E) $10,000

Accepted Answer

Target profit pricing formula is:
Price = Variable cost per unit + (Target profit ÷ Units sold)
Using the given values:
Price = $200 + ($50,000 ÷ 50)
Price = $2,080

Therefore, the price that should be charged for a typical custom suit is $2,080.

Question 17

Target return-on-sales pricing refers to
A) adjusting the price of a product so it is "in line" with that of its largest competitor.
B) setting the price of a line of products at a number of different price points.
C) adding a fixed percentage to the cost of all items in a specific product class.
D) setting prices to achieve a profit that is a specified percentage of the sales volume.
E) setting a price based on a specific annual dollar target profit volume.

Accepted Answer

Target return-on-sales pricing sets prices to achieve a profit that is a specified percentage of the sales volume. This approach takes into account both the cost of producing the product and the desired profit margin, ensuring that the company earns a consistent return on sales.

Question 18

Target return-on-investment pricing refers to
A) setting a price to achieve an annual target ROA.
B) adding a fixed percentage to the cost of all items in a specific product class.
C) setting prices to achieve a profit that is a specified percentage of the sales volume.
D) setting a price to achieve an annual target ROI.
E) setting a price based on an annual specific dollar target volume of profit.

Accepted Answer

The answer of Target return-on-investment pricing refers to
A) setting a...

Question 19

With profit-oriented approaches to pricing, a price setter may choose to balance both ________ and ________ to set price.
A) revenues; profit
B) tangible goods; services
C) costs; revenues
D) demand; supply
E) costs; demand

Accepted Answer

The answer of With profit-oriented approaches to pricing, a price...

Question 20

Target profit pricing refers to
A) adjusting the price of a product so it is "in line" with that of its largest competitor.
B) setting an annual target of a specific dollar volume of profit.
C) setting the price of a line of products at a number of different price points.
D) adding a fixed percentage to the cost of all items in a specific product class.
E) setting prices to achieve a profit that is a specified percentage of production costs.

Accepted Answer

The answer of Target profit pricing refers to
A) adjusting the...

Quiz 11: Pricing Products and Services

Setting an annual target of a specific dollar volume of profit is referred to as

Lady Marion Seafood, Inc., sells five-pound packages of Alaskan salmon. Assume that its unit variable cost per package is $30 and its fixed cost is $250,000. It wants a target profit of $38,000 based on a volume of 16,000 packages. What should the firm charge for a five-pound package of salmon?

Which of the following is a profit-oriented approach to pricing?

All of the following are profit-oriented approaches to select an approximate price level except which?

Which of the following companies would be most likely to use target return-on-investment pricing?

Setting a price to achieve a profit that is a specified percentage of the sales volume is referred to as

A critical assumption when using target profit pricing is that

The most commonly used pricing method for business products is

Architectural firms that specialize in designing and constructing one-of-a-kind custom buildings such as the Rock and Roll Hall of Fame often use which pricing strategy?

The Brazilian government wants to build a global positioning satellite (GPS) system. The satellite manufacturer will receive a mutually agreed upon profit over and above all costs associated with the project. The pricing approach the satellite manufacturer uses is called

Rather than billing clients by the hour, some lawyers and their clients agree on a fixed fee based on expected costs plus an agreed upon level of profit for the law firm. Which pricing approach are they using?

What profit-oriented pricing method is often used because of the difficulty in establishing a benchmark of sales or investment to show how much of a firm's effort is needed to achieve the target?

Target return-on-investment (ROI) is frequently used by

Setting a price to achieve an annual target return-on-investment (ROI) is referred to as

A custom tailor wishes to use target profit pricing to establish a price for a custom-designed business suit. Assume variable cost is $200 per suit, fixed cost is $44,000, and the target profit is $50,000 based on a volume of 50 suits. What price should be charged for a typical custom suit?

Target return-on-sales pricing refers to

Target return-on-investment pricing refers to

With profit-oriented approaches to pricing, a price setter may choose to balance both and to set price.

Target profit pricing refers to