Question 1

Deco Furniture sells reproductions of furniture and collectibles that were seen during the early part of the 20th century.The store's owner does not take into account competition when pricing the store's merchandise.The markup on all items in the store is 100 percent over cost (or double the cost).Deco Furniture uses:

Accepted Answer

Deco Furniture uses Keystone pricing, which is a pricing strategy in which the markup is set at 100 percent, or double the cost. This strategy is commonly used in retail and is not based on competition or target ROI.

Question 2

The typical break-even model assumes a given fixed cost and a:

Accepted Answer

Break-even quantity = Total fixed costs/(price - average variable cost).

Question 3

An analyst at Onyx,a company that makes bakers' racks,has calculated the sales volume at which the company's costs equal revenue.This analyst announced at the company's quarterly sales meeting that 13,000 racks at an average cost of $150 must be sold to retail stores during the next quarter to reach this point.Which important factor has been excluded from his analysis?

Accepted Answer

The analyst has only considered the costs and revenue of producing and selling bakers' racks, but has not taken into account the demand for the product in the market. Without considering consumer demand, it is difficult to determine whether selling 13,000 racks is feasible or not.

Question 4

Which of the following statements describes a limitation associated with break-even analysis?

Accepted Answer

One limitation of break-even analysis is that it can be difficult to accurately determine whether a cost is fixed or variable, which can affect the accuracy of the break-even point calculation.

Question 5

Profit maximization occurs when:

Accepted Answer

Profit maximization occurs when the additional revenue gained from producing one more unit of a good or service (marginal revenue) is equal to the additional cost incurred in producing that unit (marginal cost). Therefore, the correct answer is E, where marginal revenue equals marginal cost.

Question 6

As long as the revenue of the last unit produced and sold is greater than the cost of the last unit produced and sold,a firm should:

Accepted Answer

As long as the revenue of the last unit produced and sold is greater than the cost of the last unit produced and sold, a firm is making a profit on each unit sold. Therefore, it would be beneficial for the firm to continue manufacturing and selling the product until the cost of producing the last unit exceeds the revenue generated, which would result in losses.

Question 7

Ceylon Express sells bottled pasteurized tea to retailers.It has the following revenues and costs:  What is the annual break-even point in unit for the company?

Accepted Answer

The answer of Ceylon Express sells bottled pasteurized tea to...

Question 8

Amanti Lighting sells a lamp kit for making personalized lighting.The company sells each lamp kit for $22.The average variable cost for each lamp kit is $13,and the total annual fixed costs for plant operation is $78,300.What is the break-even point in units?

Accepted Answer

The answer of Amanti Lighting sells a lamp kit for...

Question 9

Keystoning is:

Accepted Answer

Keystoning simply doubles the cost.

Question 10

_____ is the extra revenue associated with selling an additional unit of output.

Accepted Answer

Marginal revenue is the change in total revenue associated with producing and selling one more unit of output. It is calculated by dividing the change in total revenue by the change in quantity of output.

Question 11

Chulo Ibsen makes and sells hand-forged wrought iron fireplace screens for $125 each.He has determined that his fixed costs are $8,000,and his variable costs per firescreen are $45.What is his fixed cost contribution per screen?

Accepted Answer

The fixed cost contribution per screen is calculated by subtracting the variable cost per screen from the selling price per screen: $125 - $45 = $80.

Question 12

Entertainment Central makes video game consoles,which it sells for $500.00.It estimates its variable costs to be $200.00 per console.It figures its fixed costs to be $600,000 per year.How many consoles does it have to sell to break-even?

Accepted Answer

Break-even point = Fixed costs / (Selling price per unit - Variable cost per unit)= 600,000 / (500 - 200)= 2,000 consoles

Question 13

_____ determine what sales volume must be reached for a product before the company's total costs equal total revenue and no profits are earned.

Accepted Answer

Break-even analyses determine the sales volume that must be reached for a product before a company's total costs equal total revenue and no profits are earned. This analysis helps companies determine the minimum amount of sales they need to make to cover their costs, and can be used to inform pricing decisions and production levels.

Question 14

Which of the following statements about pricing strategies throughout the product life cycle is FALSE?

Accepted Answer

With inelastic demand,prices are set high at introduction.

Question 15

The point at which marginal cost and marginal revenue are equal always results in:

Accepted Answer

The point at which marginal cost (MC) and marginal revenue (MR) are equal is also known as the profit-maximizing output level. At this point, the company is producing the optimal level of output where the revenue generated from selling an additional unit (MR) is equal to the cost of producing that unit (MC). Therefore, the company is not wasting resources producing more than what can be sold profitably or producing less than what could be sold profitably. Thus, the point of MC=MR always results in the maximization of profits.

Question 16

When Laser Technology developed and introduced a high-tech crash investigation system to be used by law enforcement officers,the company determined that demand for the product was inelastic,and there was no existing competition.The pricing strategy for the system should be:

Accepted Answer

Since there is no existing competition and demand is inelastic, the company can set a high initial price to capture the maximum amount of revenue from early adopters. As the system enters the growth stage, the price can be lowered slightly to stimulate further demand from the broader market. This strategy follows a typical pricing strategy for new technological innovations.

Question 17

Chulo Ibsen makes and sells hand-forged wrought iron fire screens for $125 each.He has determined that his fixed costs are $8,000,and his variable costs per firescreen are $45.What is his break-even point in dollars?

Accepted Answer

The break-even point in dollars is calculated by dividing the total fixed costs by the contribution margin ratio. The contribution margin per unit is the selling price minus the variable cost per unit ($125 - $45 = $80). The contribution margin ratio is $80/$125 = 0.64. The break-even point in units is $8,000 / $80 = 100 units. In dollars, it is 100 units * $125 = $12,500.

Question 18

Regency Inc.makes disposable cap and gown sets for graduations.Each cap and gown set sells for $15.The average variable cost for manufacturing 10 cap and gown sets is $100.Total fixed costs for the year equal $65,000.Calculate the break-even point in units.

Accepted Answer

Break-even = $65,000/[15 - (100/10)] = 13,000

Question 19

Chulo Ibsen makes and sells hand-forged wrought iron fireplace screens for $125 each.He has determined that his fixed costs are $8,000,and his variable costs per firescreen are $45.What is his break-even point in units?

Accepted Answer

The break-even point in units is calculated by dividing the fixed costs by the difference between the selling price per unit and the variable cost per unit. Here, it is $8,000 / ($125 - $45) = 100 units.

Question 20

In the mature and highly competitive furniture industry,you would expect furniture manufacturers to engage in:

Accepted Answer

In the maturity stage,with heavy competition,below-market pricing leads to price wars.

Quiz 17: Pricing Concepts