Question 1

In order to encourage customers to make frequent purchases of its sandwiches, The House of Subs would most likely offer a:

Accepted Answer

A cumulative quantity discount rewards customers for purchasing a certain amount over time, encouraging repeat business by offering discounts based on the total volume of purchases within a specific period. This aligns with the goal of encouraging frequent purchases.

Question 2

Guan-yin went into her neighborhood bookstore today looking for a mystery to read. A sign in the store stated, "Buy 5 paperback books during March and get the 6thone free." The bookstore was offering a _____ discount.

Accepted Answer

The bookstore's offer of a free book after purchasing a certain number (5) over time (during March) is an example of a cumulative quantity discount. This type of discount rewards customers for making multiple purchases over a period.

Question 3

Every time you buy a gallon of Golden Gallon milk, you can have your Golden Gallon milk card punched. When the card has 12 punches, your thirteenth gallon of milk is free. Golden Gallon is using a _____ discount.

Accepted Answer

Golden Gallon is using a cumulative quantity discount, where the discount (a free gallon of milk) is offered based on the cumulative purchases (12 gallons) over time.

Question 4

Noncumulative quantity discounts are primarily offered by a seller in order to:

Accepted Answer

Noncumulative quantity discounts are designed to encourage buyers to place large individual orders by offering a reduced price for buying a large quantity in a single order, rather than encouraging repeated purchases over time or for other reasons listed.

Question 5

Cumulative quantity discounts are designed to:

Accepted Answer

Cumulative quantity discounts are structured to motivate buyers to consolidate most, if not all, of their purchases with one seller over a certain period, fostering buyer loyalty and increasing the seller's sales volume over time.

Question 6

_____ are reductions from the list price offered to buyers in payment for marketing functions they will perform.

Accepted Answer

Trade discounts are reductions from the list price given to buyers as compensation for performing certain marketing functions, such as storage, distribution, or sales activities.

Question 7

A trade discount is also known as a _____ discount.

Accepted Answer

A trade discount is also known as a functional discount, which is given to members of the distribution channel for performing certain functions.

Question 8

Producers typically offer trade discounts when selling to:

Accepted Answer

The answer of Producers typically offer trade discounts when selling...

Question 9

A manufacturer of kits for making beaded moccasins offers a discount of 15 percent to its wholesalers in return for their transporting and storing the kits. This is an example of a ____ discount.

Accepted Answer

This is an example of a trade discount, which is offered to members of the distribution channel (like wholesalers) for performing certain functions, such as transportation and storage, that benefit the manufacturer.

Question 10

A manufacturer of leather sandals offers the reseller of the shoes a 10 percent discount in return for the retailer agreeing to be responsible for promoting the sandals. The manufacturer's 10 percent discount off the sales price is a form of ______ discount.

Accepted Answer

A functional discount is provided to channel members who perform certain functions, such as selling, storing, and record keeping. In this case, the discount is given for the retailer's role in promoting the sandals, which is a specific function within the distribution channel.

Question 11

A _____ discount is a deduction granted to buyers for paying their bills within a specified period of time.

Accepted Answer

A cash discount is specifically offered to incentivize buyers to pay their bills early or within a specified short period, often to improve the seller's cash flow.

Question 12

Whenaselleroffersacashdiscountwithtermsof3/10,n/60,thismeans:

Accepted Answer

The terms "3/10, n/60" mean that the buyer can take a 3% discount on the invoice amount if payment is made within 10 days; otherwise, the net (full) amount is due within 60 days.

Question 13

Imagine the manufacturer of Claude Montana perfume quotes a retail price of $75 on one bottle of the French designer's signature perfume and offers trade discounts of 30 percent to retailers and 15 percent to wholesalers. The perfume manufacturer would receive _____ per bottle in revenue.

Accepted Answer

The manufacturer offers a 30% discount to retailers, so the revenue from retailers would be 70% of the retail price ($75 * 0.70 = $52.50). Then, a 15% discount on this price for wholesalers means the revenue from wholesalers is 85% of $52.50 ($52.50 * 0.85 = $44.625), which rounds to $44.63.

Question 14

Imagine the manufacturer of Claude Montana perfume quotes a retail price of $75 on one bottle of the French designer's signature perfume and offers trade discounts of 30 percent to retailers and 15 percent to wholesalers. The perfume wholesaler would receive _____ per bottle in revenue.

Accepted Answer

The wholesaler's revenue per bottle is calculated by first applying the 30% retailer discount to the retail price, which reduces the price to $52.50 ($75 - $22.50), and then applying the 15% wholesaler discount on the reduced price, which does not affect the revenue received by the wholesaler from retailers, hence the wholesaler's revenue remains at $52.50 per bottle.

Question 15

If the manufacturer of prefabricated aluminum buildings quotes a retail price of $6,500 per structure with trade discounts of 15 percent and 40 percent for transporting and storing, the manufacturer would receive _____ in revenue.

Accepted Answer

The manufacturer's revenue is calculated by applying the trade discounts sequentially to the retail price. First, a 15% discount is applied: $6,500 * 0.85 = $5,525. Then, a 40% discount is applied to the result: $5,525 * 0.60 = $3,315.

Question 16

Mike is the financial officer for a company that manufactures lawn furniture from recycled materials. Cash flow has become a problem for the company, so Mike has decided to offer a 5 percent discount to its middlemen who pay a bill within 10 days after its invoice date. All bills are due within 30 days of the invoice date. How should he write these terms?

Accepted Answer

The correct terms are "5/10, n/30" which means a 5 percent discount is offered if the bill is paid within 10 days; otherwise, the net (full) amount is due within 30 days.

Question 17

The owner of Knighton Hardware store received an invoice for $145 from Coleman for a case of lanterns he purchased. The terms on the invoice read, "4/10, n/20." The next day the hardware storeowner sent Coleman a payment of $139.20. The $5.80 he subtracted from his bill is an example of a _____
 discount.

Accepted Answer

The $5.80 subtracted from the bill is an example of a cash discount, which is a reduction in the invoice price given by the seller to the buyer for paying early. The terms "4/10, n/20" mean the buyer can take a 4% discount if the invoice is paid within 10 days; otherwise, the net (full) amount is due in 20 days. The owner took advantage of this by paying less.

Question 18

As the financial officer for a company that manufactures lawn furniture from recycled materials, Mike knows the company needs to get its buyers to pay their bills more quickly. What kind of discount would be most likely to encourage faster bill payment?

Accepted Answer

A cash discount is specifically designed to encourage buyers to pay their bills more quickly by offering a reduction in the invoice amount if the bill is paid within a certain period of time. This directly incentivizes faster payment to save money.

Question 19

On May 15, Riverwalk Café received a $265 invoice for restaurant supplies. The invoice offered the following terms, "3/14, n/30." If the owner pays the invoice by May 25, she should make her check out for:

Accepted Answer

The terms "3/14, n/30" mean that the owner can take a 3% discount if the invoice is paid within 14 days; otherwise, the net amount is due in 30 days. Since the payment is made by May 25, which is within 14 days from May 15, the owner is eligible for the 3% discount. The discount amount is 3% of $265, which is $7.95. Therefore, the amount to be paid after the discount is $265 - $7.95 = $257.05.

Question 20

On May 15, Riverwalk Café received a $265 invoice for restaurant supplies. The invoice offered the following terms, "3/14, n/30." If the owner pays the invoice by June 1, she should make her check out for:

Accepted Answer

The terms "3/14, n/30" mean a 3% discount is available if paid within 14 days. Since June 1 is beyond 14 days from May 15, no discount applies, and the full amount of $265 is due.

Quiz 13: Pricing Strategies