Question 1

When buying highly technical,few-of-a-kind products such as hydroelectric power plants,governments have found that general contractors are reluctant to specify a formal,fixed price for the procurement.Therefore,these contractors use ________ to compensate them for any cost overruns.

Accepted Answer

When buying highly technical,few-of-a-kind products such as hydroelectric power plants,governments have found that general contractors are reluctant to specify a formal,fixed price for the procurement.Therefore,they use cost-plus-fixed-fee pricing,which means that the general contractors are reimbursed for all costs,regardless of what they turn out to be,but are allowed only a fixed fee as profit that is independent of the final cost of the project.

Question 2

Cost-plus-percentage-of-cost pricing refers to

Accepted Answer

Key term definition-cost-plus-percentage-of-cost pricing.

Question 3

All of the following statements about standard markup pricing are true except which?

Accepted Answer

All of the following statements apply to standard markup pricing except "summing the total unit cost of providing a product or service and adding a specific amount to the cost," which applies to cost-plus pricing.

Question 4

Setting the price of a product or service by adding a fixed percentage to the total unit cost is referred to as

Accepted Answer

Key term definition-cost-plus-percentage-of-cost pricing.

Question 5

What pricing strategy did the National Aeronautics and Space Administration (NASA)use to pay Lockheed Martin for the Orion lunar spacecraft?

Accepted Answer

The National Aeronautics and Space Administration agreed to pay Lockheed Martin $4 billion as the cost for its Orion lunar spacecraft and agreed to a $6.5 billion fee for providing the lunar spacecraft.Even if Lockheed Martin's cost increased to $7 billion for the lunar spacecraft,its fee would remain at $6.5 billion.

Question 6

Which of the following type of business is most likely to use cost-plus-percentage-of-cost pricing?

Accepted Answer

Cost-plus-percentage-of-cost pricing describes a pricing method in which a fixed percentage is added to the total unit cost.This is often used to price one- or few-of-a-kind items,as when an architectural firm charges a percentage of the construction costs.

Question 7

Supermarket managers use standard markup pricing because it is particularly suited to situations when

Accepted Answer

Managers of supermarkets and other retail stores have such a large number of products that estimating the demand for each product as a means of setting price is impossible.Therefore,they use standard markup pricing,which adds a fixed percentage to the cost of all items in a specific product class.

Question 8

Adding a fixed percentage to the cost of all items in a specific product class is referred to as

Accepted Answer

Key term definition-standard markup pricing.

Question 9

Cost-plus pricing refers to

Accepted Answer

Key term definition-cost-plus pricing.

Question 10

The two forms of cost-plus pricing are

Accepted Answer

Cost-plus pricing generally assumes two forms: (1)cost-plus-percentage-of-cost pricing,in which a fixed percentage is added to the total unit cost,and (2)cost-plus-fixed-fee pricing,in which a supplier is reimbursed for all costs but is allowed only a fixed fee as profit that is independent of the final cost of the project.

Question 11

Standard markup pricing refers to

Accepted Answer

Key term definition-standard markup pricing.

Question 12

A pricing method where a supplier is reimbursed for all costs,regardless of what they may be,and also receives an agreed-on dollar amount of profit that is independent of the final cost of the project,is referred to as

Accepted Answer

Key term definition-cost-plus-fixed-fee pricing.

Question 13

Which of the following is a cost-oriented pricing method?

Accepted Answer

Standard markup pricing is a cost-oriented approach.

Question 14

With a cost-oriented pricing strategy,a price setter stresses the ________ side of the pricing problem,and the price is set by looking at

Accepted Answer

With cost-oriented approaches to pricing,a price setter stresses the cost side of the pricing problem,not the demand side.Price is set by looking at the production and marketing costs and then adding enough to cover direct expenses,overhead,and profit.

Question 15

Summing the total unit cost of providing a product or service and adding a specific amount to the cost to arrive at a price is referred to as

Accepted Answer

Key term definition-cost-plus pricing.

Question 16

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

Accepted Answer

Cost-plus pricing is a cost-oriented approach to pricing.Loss-leader pricing is a competition-oriented approach to pricing.Skimming,prestige,and bundle pricing are demand-oriented approaches to pricing.

Question 17

Which of the following statements regarding cost-oriented approaches is most accurate?

Accepted Answer

With cost-oriented approaches,a price setter stresses the cost side of the pricing problem,not the demand side.Price is set by looking at production and marketing costs and then adding enough to cover direct expenses,overhead,and profit.

Question 18

Standard markup pricing is considered to be a ________ approach to pricing.

Accepted Answer

Standard markup is a cost-oriented approach for selecting an approximate price level.

Question 19

Creative Quilts Studio sells hundreds of colors and types of fabric and thread.To price its inventory,the owners add 50 percent to the cost of each bolt of fabric and every spool of thread.What is this pricing approach called?

Accepted Answer

Standard markup pricing adds a fixed percentage to the cost of all items in a specific product class-in this case,fabric and thread.

Question 20

It costs Lady Marion Seafood,Inc. ,$30 to catch,process,freeze,package,and ship five-pound packages of Alaskan salmon.The firm adds 60 percent to the cost of its salmon products and charges customers a total of $48 for a postage-paid vacuum-sealed package.What type of pricing does Lady Marion Seafood use?

Accepted Answer

Standard markup pricing adds a fixed percentage (60 percent)to the cost ($30)of all items in a specific product class (five-pound packages of salmon),yielding a final price of $48.

Quiz 14: Arriving at the Final Price