Question 1

Samsung Mobile plans to launch a new phone with a unit cost of $270 and wants to earn a 10 percent markup on its sales. Samsung's markup price is ________.
A) $275
B) $280
C) $295
D) $300
E) $335

Accepted Answer

The answer of Samsung Mobile plans to launch a new...

Question 2

Target return pricing uses the concept of a(n) ________, which shows the total cost and total revenue expected at different sales volume levels.
A) BCG matrix
B) break-even chart
C) SWOT analysis
D) demand curve
E) experience curve

Accepted Answer

Target return pricing involves determining the total cost associated with producing and selling a product, as well as the expected revenue at different levels of sales volume. This information is typically presented in a break-even chart, which shows the sales volume required to break even at different price points. By setting a target return (e.g. a specific profit margin), the company can then use the break-even chart to determine the optimal price to charge for the product.

Question 3

Product costs set the ceiling for prices.

Accepted Answer

Product costs set the floor for prices, as they represent the minimum amount a company must charge to cover expenses and avoid losses. The ceiling for prices is typically determined by market demand and competition.

Question 4

A manufacturer has fixed costs of $100,000, a variable cost of $10 per unit of output, and break-even volume of 50,000 units. What should the manufacturer's unit cost be in order to break even?
A) $10
B) $12
C) $14
D) $16
E) $20

Accepted Answer

Break-even unit cost = Fixed costs / Break-even volume = $100,000 / 50,000 units = $12

Question 5

Customer perceptions of the product's value set the floor for prices.

Accepted Answer

Customer perceptions of the product's value set the ceiling for prices, as they determine the maximum price customers are willing to pay. The floor is typically set by the company's costs.

Question 6

Which of the following involves setting prices based on a rival firm's strategies, costs, prices, and market offerings?
A) target return pricing
B) good-value pricing
C) competitor value-added pricing
D) market-based pricing
E) competition-based pricing

Accepted Answer

Competition-based pricing involves setting prices based on a rival firm's strategies, costs, prices, and market offerings. The goal is to stay competitive and capture market share from the rival firm. Target return pricing focuses on achieving a specific return on investment, good-value pricing aims to provide the best value to customers, competitor value-added pricing is where price is set based on how much value the product adds to the customer compared to competitors, and market-based pricing considers the overall market demand and supply.

Question 7

Which of the following statements about break-even analysis is true?
A) It is used to determine how much production experience a company must have in order to achieve desired efficiencies.
B) It is a technique used to calculate fixed costs.
C) It determines the amount of retained earnings a company will have during a given accounting period.
D) It is a technique marketers use to determine the relationship between supply and demand.
E) It is calculated by using variable costs, the unit price, and fixed costs.

Accepted Answer

Break-even analysis is calculated by using variable costs, the unit price, and fixed costs. It is a financial tool used to determine the level of sales a company must achieve to break even (cover all its costs).

Question 8

Target return pricing is a variation of which of the following cost-oriented pricing approaches?
A) cost-plus pricing
B) break-even pricing
C) markup pricing
D) value-based pricing
E) fixed cost pricing

Accepted Answer

Target return pricing is a variation of break-even pricing, where the goal is to determine the price needed to achieve a specific return on investment.

Question 9

Which of the following is a cost-based approach to pricing?
A) value-based pricing
B) high-low pricing
C) target return pricing
D) good value pricing
E) EDLP

Accepted Answer

Target return pricing is a cost-based approach that involves setting prices based on the desired level of profitability or return on investment. Costs are calculated and then a markup is added to arrive at the final price.

Question 10

Why is markup pricing most likely popular?
A) Sellers are more certain about demand than about costs.
B) Markup pricing tends to maximize market competition.
C) Markup pricing affords buyers greater bargaining power.
D) Sellers do not need to make frequent adjustments as demand changes.
E) Markup pricing is designed to set prices to break even on the costs of making and marketing a product.

Accepted Answer

Markup pricing is popular because it simplifies pricing by allowing sellers to set a consistent price above cost, reducing the need for frequent adjustments as demand changes.

Question 11

When performing a break-even analysis, the manufacturer should consider all of the following EXCEPT ________.
A) probable demand
B) likely profits
C) competitors' pricing
D) estimated break-even volumes
E) different prices

Accepted Answer

The answer of When performing a break-even analysis, the manufacturer...

Question 12

Refer to the scenario below to answer the following question(s).
Alden Manufacturing produces small kitchen appliances-blenders, hand mixers, and electric skillets-under the brand name First Generation. Alden attempts to target newlyweds and first-time home buyers with this brand.
Considering that most young households have limited financial resources, Alden attempts to engage in target costing. "In doing this," says Milt Alden, the co-founder of Alden Electronics, "we have better control over keeping price right in line with customers."
Alden manufactures a three-speed blender, its top seller, along with a five-speed blender. The hand mixers are manufactured in two variants-a small handheld mixer with two rotating beaters and another that comes with an optional stand and an attached mixing bowl. Alden's temperature-controlled skillets are manufactured in a single style with three color options.
"Our product offerings are narrower," Milt Alden added, "but our line workers know each product like the back of their hands. This allows us to produce superior products while holding our prices low.
-Which of these is NOT a way in which pricing can accomplish company objectives?
A) set prices to attract new customers and retain existing customers
B) raise prices to create excitement for a brand
C) set prices low to hinder competition from entering the market
D) price one product to help sales of other products in the company's line
E) set price to keep the loyalty of resellers

Accepted Answer

Raising prices does not align with the objective of targeting young households with limited financial resources. It may create excitement for a brand, but it may also deter potential customers who are looking for affordable options.

Question 13

As a manufacturer increases the price, ________.
A) efficiency drops
B) the break-even volume drops
C) competition is minimized
D) the total costs increase
E) the profit margin shrinks

Accepted Answer

When a manufacturer increases the price, the break-even volume drops because fewer units need to be sold to cover fixed costs, assuming variable costs remain constant.

Question 14

Mansfield Pharmaceuticals markets Zipro, an antibiotic. The firm has fixed costs of $1,000,000 and variable costs of $2 per bottle of 50 tablets priced at $10 per bottle. What is the break-even volume?
A) 25,000
B) 55,000
C) 100,000
D) 115,000
E) 125,000

Accepted Answer

The answer of Mansfield Pharmaceuticals markets Zipro, an antibiotic. The...

Question 15

Companies can legitimately charge a higher price if ________.
A) consumers perceive that the company's product offers greater value
B) the demand for products manufactured by a firm is highly elastic
C) the cost of advertising is minimal
D) derived demand remains constant
E) consumers de-emphasize quality

Accepted Answer

If consumers perceive that a company's product offers greater value, they are willing to pay a higher price. This perception can be based on factors such as brand reputation, quality, and features. Therefore, companies can legitimately charge a higher price if their product is perceived to offer better value to consumers.

Question 16

John assured his venture capitalists an earning of 25-percent return on equity when he began his IT startup. In order to achieve this result, he will most likely use which of the following pricing approaches?
A) value-based pricing
B) markup pricing
C) EDLP
D) customer-based pricing
E) target return pricing

Accepted Answer

Target return pricing is a pricing approach where the business sets the price based on the target level of return on investment. In this case, John has set a target return of 25% on equity. Therefore, he will most likely use target return pricing to determine the price of his product or service to ensure that he achieves his desired return on investment.

Question 17

Refer to the scenario below to answer the following question(s).
Alden Manufacturing produces small kitchen appliances-blenders, hand mixers, and electric skillets-under the brand name First Generation. Alden attempts to target newlyweds and first-time home buyers with this brand.
Considering that most young households have limited financial resources, Alden attempts to engage in target costing. "In doing this," says Milt Alden, the co-founder of Alden Electronics, "we have better control over keeping price right in line with customers."
Alden manufactures a three-speed blender, its top seller, along with a five-speed blender. The hand mixers are manufactured in two variants-a small handheld mixer with two rotating beaters and another that comes with an optional stand and an attached mixing bowl. Alden's temperature-controlled skillets are manufactured in a single style with three color options.
"Our product offerings are narrower," Milt Alden added, "but our line workers know each product like the back of their hands. This allows us to produce superior products while holding our prices low.
-Milt Alden says that his line workers "know each product like the back of their hands," and that this knowledge helps the company keep its prices low. This indicates that Alden Manufacturing most likely benefits from the ________.
A) cost-plus pricing
B) value-added pricing
C) experience curve
D) inelastic demand in the market
E) derived demand in the market

Accepted Answer

The statement suggests that Alden Manufacturing benefits from the experience curve, which refers to the reduction in production costs that comes from experience gained through cumulative production. By having line workers who are knowledgeable about each product, Alden can produce them more efficiently, leading to cost savings and potentially lower prices for customers. Cost-plus pricing and value-added pricing are pricing strategies, while inelastic demand and derived demand are market concepts that do not directly relate to Alden Manufacturing's production processes.

Question 18

The break-even volume is the point at which ________.
A) the total revenue and total cost curves intersect
B) demand equals supply
C) the production of one more unit will not lead to increase in demand
D) the company can pay off all its long-term debt
E) a firm exceeds the sales forecast

Accepted Answer

The break-even volume is the point at which the total revenue equals total costs. At this point, the company is neither making a profit nor a loss. Therefore, option A is the correct answer as it states the point of intersection between total revenue and total cost curves.

Question 19

Why is markup pricing most likely impractical?
A) Calculating costs is complicated due to fluctuations.
B) By tying the price to cost, sellers oversimplify pricing.
C) When all firms in the industry use this pricing method, prices tend to be similar.
D) The method ignores demand and competitor prices.
E) With a standard markup, consumers know when they are being overcharged.

Accepted Answer

Markup pricing only considers cost and ignores demand and competitor prices, which can lead to prices that are too high or too low compared to the market. Therefore, it is not a practical pricing strategy for most businesses.

Question 20

A company faces fixed costs of $100,000 and variable costs of $8 per unit. It plans to directly sell its product in the market for $12. How many units must it produce and sell to break even?
A) 20,000
B) 25,000
C) 30,000
D) 35,000
E) 40,000

Accepted Answer

To calculate the break-even point, we need to find out how many units the company needs to sell to generate enough revenue to cover both fixed and variable costs.

Let x be the number of units the company needs to produce and sell to break even.

Total cost = Fixed cost + Variable cost 
Total revenue = Selling price x Number of units sold

At the break-even point, total cost = total revenue

Therefore:

100,000 + 8x = 12x

4x = 100,000

x = 25,000

Thus, the company needs to produce and sell 25,000 units to break even.

Quiz 10: Pricing: Understanding and Capturing Customer Value

Samsung Mobile plans to launch a new phone with a unit cost of $270 and wants to earn a 10 percent markup on its sales. Samsung's markup price is ________.

Target return pricing uses the concept of a(n) ________, which shows the total cost and total revenue expected at different sales volume levels.

Product costs set the ceiling for prices.

A manufacturer has fixed costs of $100,000, a variable cost of $10 per unit of output, and break-even volume of 50,000 units. What should the manufacturer's unit cost be in order to break even?

Customer perceptions of the product's value set the floor for prices.

Which of the following involves setting prices based on a rival firm's strategies, costs, prices, and market offerings?

Which of the following statements about break-even analysis is true?

Target return pricing is a variation of which of the following cost-oriented pricing approaches?

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

Why is markup pricing most likely popular?

When performing a break-even analysis, the manufacturer should consider all of the following EXCEPT ________.

As a manufacturer increases the price, ________.

Mansfield Pharmaceuticals markets Zipro, an antibiotic. The firm has fixed costs of $1,000,000 and variable costs of $2 per bottle of 50 tablets priced at $10 per bottle. What is the break-even volume?

Companies can legitimately charge a higher price if ________.

John assured his venture capitalists an earning of 25-percent return on equity when he began his IT startup. In order to achieve this result, he will most likely use which of the following pricing approaches?

The break-even volume is the point at which ________.

Why is markup pricing most likely impractical?

A company faces fixed costs of $100,000 and variable costs of $8 per unit. It plans to directly sell its product in the market for $12. How many units must it produce and sell to break even?