Deck 10: Marketing Decisions

Question 1

Pricing of product/services depends on:

A)Cost
B) Competitor prices
C) What customers are willing to pay
D) All of the above

Answer 1

All of the above

Question 2

Fixed costs are costs that:

A) Never change
B) Change with increases in business activity
C) Do not change with increases in business activity
D) Change when activity reaches a critical level

Answer 2

Do not change with increases in business activity

Question 3

A professional services business has fixed costs of €150,000 and variable costs of €15 per hour. The difference between average costs at a level of activity of 12,000 and 15,000 hours is:

A) A reduction of €2.50
B) An increase of €2.50
C) An increase of €15
D) A reduction of €25

Answer 3

A reduction of €2.50

Question 4

The volume of activity and costs which a business expects over the short-term planning horizon is represented in the:

A) CVP analysis
B) Profit-volume graph
C) Breakeven calculation
D) Relevant range

Question 5

Use the following information $$\begin{array} { | l | l r | } \hline \text { Fixed costs } & £ & 240,000 \\\hline \text { Selling price perunit } & £ & 18.00 \\\hline \text { Variable costs per unit } & £ & 12.60 \\\hline \text { Target profit } & £ & 120,000 \\\hline\end{array}$$

-The breakeven point in units is closest to:

A) 44,444
B) 55,500
C) 66,667
D) 88,888

Question 6

Use the following information $$\begin{array} { | l | l r | } \hline \text { Fixed costs } & £ & 240,000 \\\hline \text { Selling price perunit } & £ & 18.00 \\\hline \text { Variable costs per unit } & £ & 12.60 \\\hline \text { Target profit } & £ & 120,000 \\\hline\end{array}$$

-The breakeven point in £ is closest to:

A) £1,200,000
B) £841,120
C) £800,000
D) £560,747

Question 7

Use the following information $$\begin{array} { | l | l r | } \hline \text { Fixed costs } & £ & 240,000 \\\hline \text { Selling price perunit } & £ & 18.00 \\\hline \text { Variable costs per unit } & £ & 12.60 \\\hline \text { Target profit } & £ & 120,000 \\\hline\end{array}$$

-The number of units to be sold to achieve the target profit is closest to:

A) 44,444
B) 55,500
C) 66,667
D) 88,888

Question 8

Use the following information $$\begin{array} { | l | l r | } \hline \text { Fixed costs } & £ & 240,000 \\\hline \text { Selling price perunit } & £ & 18.00 \\\hline \text { Variable costs per unit } & £ & 12.60 \\\hline \text { Target profit } & £ & 120,000 \\\hline\end{array}$$

-The sales £ needed to achieve the target profit is closest to:

A) £1,200,000
B) £841,120
C) £800,000
D) £560,747

Question 9

Use the following information $$\begin{array} { | l | l r | } \hline \text { Fixed costs } & £ & 240,000 \\\hline \text { Selling price perunit } & £ & 18.00 \\\hline \text { Variable costs per unit } & £ & 12.60 \\\hline \text { Target profit } & £ & 120,000 \\\hline\end{array}$$

-If expected sales are 50,000 units, the margin of safety is closest to:

A) 11.1%
B) 12.5%
C) 30%
D) 50%

Question 10

Sales mix affects profitability because:

A) Different products have different prices
B) Different products have different costs
C) Different products have different volumes of sales
D) All of the above

Question 11

Operating leverage is:

A) The ratio of debt to equity
B) The mix of product/services at different prices
C) The mix of fixed and variable costs in a business
D) The ratio of profit to volume

Question 12

Two companies sell an identical product at the same selling price of $12.00. Mini's production is quite labour intensive with variable costs of $3.50 per unit and fixed costs of $100,000. Maxi has invested more in labour-saving technology and has fixed costs of $150,000 and variable costs of $2.00 per unit. Compared to maxi, Mini has a:

A) Higher breakeven point and a higher contribution per unit
B) Lower breakeven point and a lower contribution per unit
C) Higher breakeven point and a lower contribution per unit
D) Lower breakeven point and a higher contribution per unit

Question 13

CVP analysis is;

A) Useful in all cases
B) Useful within the relevant range
C) Useless as it assumes a single product/service
D) Useless as it assumes that all costs can be divided into fixed and variable

Question 14

A company has a selling price for its product of €15 and a total cost for each product of €9. The percentage markup and margin are:

A) $\begin{array} { l } \text {Markup }&\text { Margin }\\40\%&66.7\%\end{array}$

B) $\begin{array} { l } \text {Markup }&\text { Margin }\\66.7\%&40\%\end{array}$

C) $\begin{array} { l } \text {Markup }&\text { Margin }\\40\%&60\%\end{array}$

D) $\begin{array} { l } \text {Markup }&\text { Margin }\\60\%&40\%\end{array}$

Question 15

XYZ Inc has made an investment of $25 million to produce its Epsilon product. The company's target is for a 15% return on investment. XYZ produces 150,000 Epsilons per year with a total cost per unit of $45. To achieve the company's target profit, the selling price for each Epsilon needs to be:

A) $25
B) $70
C) $95
D) $105

Question 16

Widget Co has fixed costs of £350,000 and variable costs of £3 per widget. Market research has identified the likely demand based on different selling prices as follows: $\begin{array}{|c|c|}\hline\text { Sellingprice } & \text { Volume } \\\text { perunit £} & \\\hline 10 & 60,000 \\\hline 11 & 57,000 \\\hline 12 & 52,000 \\\hline13 & 45,000\\\hline\end{array}$

-To maximise profits, Widget Co should sell its widgets at a selling price of:

A) £10
B) £11
C) £12
D) £13

Question 17

BCD Inc sells its products for $12 each. The company's volume has remained unchanged for some time at 10,000 units per month although it has spare capacity. Production costs are $10 per unit including fixed costs which average $3 per unit for the production volume. A customer has requested a special order of 2,000 of BCD's products at a special price of $9. BCD should:

A) Reject the order because there would be a loss of $2,000
B) Reject the order because the selling price of $9 is lower than the cost price of $10
C) Accept the order because there would be additional revenue of $18,000
D) Accept the order because there would be an additional profit of $2,000

Question 18

THY Stores has three departments: Books, magazines and Greeting cards. Each department has its own staff costs and is allocated a share of store rental and managerial salary in proportion to its sales revenue. THY's accountant has produced the following data to highlight the unprofitability of books and magazines: $$\begin{array} { | l | r | r | r | r | } \hline & \text { Books } & \text { Magazines } & \text { Greeting } & \text { Total } \\\hline \text { Sales revenue } & & & \text { Cards } & \\\hline \text { Variable costs } & 15000 & 40000 & 10000 & 65000 \\\hline \text { Fixed staffing cost for department } & 7500 & 16000 & 3000 & 26500 \\\hline \text { Shop fixed costs } & 4000 & 8000 & 6000 & 18000 \\\hline & 3692 & 9846 & 2462 & 16000 \\\hline\end{array}$$ THY Stores should:

A) Close the books and greeting card departments as they are both loss making
B) Close the greeting card department only because the books department is almost at breakeven point
C) Close the greeting card department because there is no contribution towards shop fixed costs
D) Retain all departments because they are all making a contribution towards shop fixed costs

Question 19

Sales Agencies Ltd have identified three large customers whose profitability is marginal. Each customer requires substantial support which involves dedicated sales and clerical staff. Corporate costs are charged at £3000 to each customer to cover central administration costs. Customer profitability information is shown below: $\begin{array}{|r|r|r|r|r|}\hline &\text { Willow } & \text { Oak } & \text { Cedar } & \text { Total } \\\hline &£&£&£&£\\\hline \text { Sales revenue }&30000 & 15000 & 25000 & 70000 \\\hline \text { Variable costs }&15000 & 4500 & 16250 & 35750 \\\hline \text { Fixed asstomer support costs }&8000 & 7000 & 9000 & 24000 \\\hline \text { Corporate costs }&3000 & 3000 & 3000 & 9000 \\\hline\end{array}$

A) The Cedar customer is unprofitable as it makes a loss of £3250
B) The Cedar customer is profitable as it makes a contribution of £8750 to fixed costs
C) The Cedar customer is unprofitable as it makes a negative contribution of £250 to corporate costs
D) The Cedar customer is profitable because it generates revenue of £25000