Question 1

________ tells what portion of the total revenues remains after covering variable costs to contribute toward meeting fixed expenses and earning a profit.

Accepted Answer

The contribution percentage is the portion of the total revenues that remains after covering variable costs. It is a crucial metric in determining the break-even point and in making pricing decisions to ensure that the business earns a profit.

Question 2

A customer who purchases a television from Ace Appliance Store and pays for it in 36 monthly payments is using:

Accepted Answer

The customer is making payments over time, which is characteristic of installment credit. Trade credit is when a business extends credit to another business for goods/services provided. Charge account credit typically requires payment in full each billing cycle. Debit card credit involves using funds that are immediately deducted from a bank account.

Question 3

Brenda is starting her business by offering exclusive hand-bags.The desired image that she should set for her handbags is "exclusive." She should set the price at:

Accepted Answer

To maintain an exclusive image for her handbags, Brenda should set the price at upscale. By setting the price at a higher level, she will create a perception of exclusiveness and high quality, which will attract customers who are willing to pay for luxury items. A discount or bargain pricing strategy would undermine the perceived exclusivity, while a value strategy is more suited to products that aim to offer relatively low prices while still providing a desirable level of quality.

Question 4

In most cases,a ________ pricing strategy is used to introduce relatively low priced goods into the market where no elite segment and little opportunity for differentiation exist.

Accepted Answer

A penetration pricing strategy is used to introduce low priced goods into the market where there is no elite segment and little opportunity for differentiation. This strategy is meant to attract a larger customer base and gain market share quickly by offering lower prices than competitors.

Question 5

When developing a marketing approach to pricing,business owners must:

Accepted Answer

When developing a marketing approach to pricing, it is important to consider customers' expectations and what they are willing to pay. Simply competing solely on price is not a sustainable strategy and can often lead to a race to the bottom. Adding or subtracting a certain percentage may not accurately reflect customers' willingness to pay and may not be competitive in the market. Therefore, establishing prices that are compatible with customers' expectations is the best approach.

Question 6

Even in the short run,a small business must set the price of a product at least equal to the ________ costs (per unit),or it must shut down.

Accepted Answer

In the short run, a small business must set the price of a product at least equal to the variable costs (per unit), as fixed costs are sunk costs that cannot be recovered even if the business shuts down. If the price is set below the variable costs, the business will incur losses on every unit sold and eventually run out of cash, leading to a shutdown. Therefore, Option B, variable costs, is the correct choice.

Question 7

The price that business owners set depends on the desired image they want to create for their products or services.These images are:

Accepted Answer

Business owners can choose to set their prices based on creating a discount image (lower prices to attract budget-conscious customers), a value image (a balance between price and quality), or an upscale image (higher prices to create an impression of luxury or exclusivity). Therefore, all three choices (A, B, and C) are correct.

Question 8

Price ________ usually begin when one competitor believes that they can achieve a higher volume through lower price,or they believe that they can exert enough pressure on other competitors' profits to drive them out of business.

Accepted Answer

Price wars occur when competitors aggressively lower prices to gain market share or drive others out of business.

Question 9

A variation of geographic pricing in which the small company sells its merchandise to customers on the condition that they pay all the shipping is called:

Accepted Answer

The condition of paying for shipping is known as F.O.B. (Free on Board) factory pricing, also called F.O.B. origin pricing. This means that the buyer takes ownership and responsibility for the goods once they leave the factory, including the cost of shipping. This variation of geographic pricing is commonly used by small businesses to avoid the complexities of zone pricing or uniform delivered pricing.

Question 10

A firm sells small-ticket items to their regular customers on customer charge accounts and then bills the customers each month.This type of credit arrangement is called:

Accepted Answer

The answer of A firm sells small-ticket items to their...

Question 11

To establish a reasonable,profitable price for service,the small business owner needs to know:

Accepted Answer

The answer of To establish a reasonable,profitable price for service,the...

Question 12

Uniform delivered pricing is a variation of:

Accepted Answer

Uniform delivered pricing is a type of geographic pricing where the price of a product is the same for all customers regardless of their location, and includes the cost of delivery in the price.

Question 13

Most service firms base their prices on:

Accepted Answer

The answer of Most service firms base their prices on:
...

Question 14

Customers that sell small-ticket items frequently offer their customers:

Accepted Answer

The answer of Customers that sell small-ticket items frequently offer...

Question 15

F.O.B.factory is a variation of ________ pricing.

Accepted Answer

F.O.B. (Free on Board) pricing refers to the cost of the product at the factory before any additional fees, such as shipping or transportation, are added. This is a variation of geographic pricing, which takes into account the location of the buyer and seller and the costs associated with transporting the product to its final destination. Opportunistic pricing refers to changing prices based on market conditions, bundling pricing refers to offering multiple products at a discounted rate, and skimming pricing refers to setting high prices initially and gradually reducing them over time. None of these are directly related to F.O.B. pricing.

Question 16

________ costing includes only those costs that vary directly with the volume of an item produced.

Accepted Answer

Direct costing, also known as variable costing, only considers the direct costs that vary with production volume, such as materials, labor, and variable overhead. Fixed costs, such as rent and salaries, are not included in the calculation.

Question 17

Which price strategy is mostly used for moving stale,outdated,damaged merchandise?

Accepted Answer

Markdown pricing is commonly used for moving stale, outdated or damaged merchandise as it involves reducing prices to clear out inventory quickly. This strategy helps to avoid losses on unsold inventory and can attract bargain-hunting customers looking for good deals.

Question 18

Price wars usually begin when:

Accepted Answer

Price wars typically begin when one competitor believes that they can achieve a higher volume through lower prices. This is often done to gain a larger market share and can lead to a downward spiral of prices as competitors try to undercut each other. The other options may contribute to the likelihood of price wars, but are not the direct cause.

Question 19

For some customers,a higher price equals:

Accepted Answer

Some customers may perceive a higher price as an indicator of higher quality, while others may see it as a symbol of uniqueness. Additionally, a higher price can create a sense of greater perceived value for some customers. Therefore, all of the options (higher quality, uniqueness, and greater perceived value) may be associated with a higher price for different customers.

Question 20

XYZ manufactures computer hardware.The marketing executives,in order to increase the market share,forced a business to accept a suggested retail price and not to sell the items below the stated price.

Accepted Answer

The answer of XYZ manufactures computer hardware.The marketing executives,in order...

Quiz 11: Pricing and Credit Strategies