Question 1

William Clark wants to know his breakeven point.His selling price is $20 per unit,his fixed costs are $6,000,and the variable costs per unit are $6.What is his breakeven quantity?

Accepted Answer

The breakeven point in units can be calculated using the formula: Breakeven Point = Fixed Costs / (Selling Price per Unit - Variable Cost per Unit). Plugging in the given values: $6,000 / ($20 - $6) = $6,000 / $14 = 428.57 units. Since the breakeven quantity must be a whole number, it's rounded to 428.6 units for the purpose of this calculation, but in practical scenarios, you would need to sell 429 units to fully cover the fixed costs.

Question 2

Raw materials are an example of a firm's ____ costs.

Accepted Answer

Raw materials are categorized as variable costs because their quantity and cost vary with the level of production.

Question 3

Price differentiation attempts to sell

Accepted Answer

Price differentiation refers to selling identical products at different prices at different times. This strategy is used to maximize profit by selling the product at a higher price to customers who are willing to pay more and at a lower price to those who are price-sensitive. It allows companies to capture more of the consumer surplus and increase their overall revenue.

Question 4

If company B references company C in determining what price to sell its own product at,it exercises which pricing objective?

Accepted Answer

Status quo pricing involves setting prices based on competitors' prices, aiming to maintain a stable market position without initiating price wars.

Question 5

United Airlines prices its tickets so that it is less expensive to travel between midnight and 5:00 a.m.than during the day,when there is heavy business travel.This illustrates ____ pricing.

Accepted Answer

This pricing strategy is demand-based, as United Airlines is adjusting its prices based on the demand for travel during certain times of the day. By pricing tickets lower during times when there is typically less demand, such as overnight, the airline is able to attract more customers to fill those otherwise empty seats.

Question 6

If Carson purchases a tie from JCPenney for $30,that $30 represents JCPenney's ____ from the sale.

Accepted Answer

Revenue is the total amount of money received by a company from its sales, and since JCPenney is selling a tie to Carson for $30, that $30 would represent their revenue from the sale.

Question 7

Costs that are incurred no matter how many units of a product are produced or sold are called

Accepted Answer

Fixed costs are costs that do not change with the production or sales level of a product. These costs are incurred regardless of whether any products are produced or sold. Examples of fixed costs include rent, salaries of permanent employees, and property taxes.

Question 8

The number of units that must be sold for the total revenue to equal the total cost is called the ____ quantity.

Accepted Answer

The term used to describe the number of units that must be sold for the total revenue to equal the total cost is called the breakeven quantity.

Question 9

Hallmark cards develops a new line of cards that have a total cost of $200,000 and a price of $3 each.If it sells 20,000 cards the first month,what is its total revenue?

Accepted Answer

Total revenue is calculated by multiplying the price per item by the number of items sold. Therefore, $3 per card * 20,000 cards = $60,000.

Question 10

A hotel room in New Orleans during Mardi Gras costs considerably more than it would during the following week.This is an example of

Accepted Answer

This is an example of price differentiation, where the hotel is charging a higher price during a peak season or event (Mardi Gras) compared to the regular price during non-peak times.

Question 11

Price differentiation is

Accepted Answer

Price differentiation is a form of demand-based pricing that involves offering different prices to different customers based on their perceived willingness to pay. The goal is to optimize revenue by charging higher prices to customers who are willing to pay more and lower prices to those who are not. This method is commonly used in industries such as airlines and hotels, where prices can vary significantly based on factors such as time of day, day of the week, and advance booking.

Question 12

In cost-based pricing,a producer adds an amount to the total production cost to provide a profit.The amount added to the production cost is called a

Accepted Answer

The amount added to the production cost to provide a profit is called a markup.

Question 13

Costs that depend on the number of units produced are called

Accepted Answer

Costs that depend on the number of units produced are called variable costs.

Question 14

Philip James asks you to calculate the breakeven point for him.You need which information from him to do so?

Accepted Answer

To calculate the breakeven point, we need to know the variable costs per unit, fixed costs, and unit selling price. This allows us to determine the number of units that need to be sold in order to cover all costs and reach the point where net income is zero. Information about assets, liabilities, owners' equity, and dollar values is not relevant for calculating the breakeven point. While fixed costs and operating expenses are important for determining the breakeven point, they are not sufficient without information on variable costs and unit selling prices. Therefore, the best choice for information needed to calculate the breakeven point is E, variable costs per unit, fixed costs, and unit selling price.

Question 15

For any product,the breakeven quantity is the

Accepted Answer

The breakeven quantity is the number of products that need to be sold in order to cover all costs and break even with revenues. It is not related to the number of units sold over fifty units, the total number produced, the number of products needed to make a reasonable profit, or the dollar volume of total sales.

Question 16

Sprint charges different rates for long-distance service depending on time of day and distance of the call.This pricing method is called ____ pricing.

Accepted Answer

The described pricing method, where rates vary based on time of day and distance, is consistent with demand-based pricing.

Question 17

At a busy intersection in Atlanta,there are four competing gas stations.Each of the stations charges about the same for each gallon of gasoline.The pricing objectives of these firms is

Accepted Answer

The pricing strategy described, where all gas stations charge about the same amount for gasoline, is known as status-quo pricing. This approach aims to maintain existing prices and avoid price wars among competitors, focusing on stabilizing market share rather than aggressively competing on price.

Question 18

The total amount received from the sales of a product is referred to as

Accepted Answer

Total revenue refers to the total amount received from the sales of a product, which is calculated by multiplying the price of each unit by the total number of units sold.

Question 19

The sum of the fixed costs and the variable costs of producing a certain number of units is called the

Accepted Answer

The sum of the fixed costs and variable costs is called the total cost. This represents the overall cost of producing a certain number of units, including both the expenses that remain constant regardless of how many units are produced (fixed costs) and the expenses that increase with each additional unit produced (variable costs).

Question 20

Demand-based pricing,unlike cost-based pricing,places firms in a better position to

Accepted Answer

Demand-based pricing allows firms to set prices based on the perceived value to the customer, rather than simply covering costs. This can result in higher profit levels as customers are willing to pay more for products or services they perceive as valuable.

Quiz 12: Creating and Pricing Products That Satisfy Customers