Question 1

When it comes to pricing decisions,the cost of the product or service is the lower limit of the price,where as the legal,political and ethical issues set the upper level of the price.

Accepted Answer

The answer of When it comes to pricing decisions,the cost...

Question 2

When pricing new products,one strategy that can be used is price skimming where the initial product price is set low and in doing this management hope the product will be widely accepted in the long term.

Accepted Answer

Price skimming involves setting the initial price of a new product high and gradually lowering it over time as the market becomes more saturated. This strategy is typically used for products with a high level of innovation or unique features.

Question 3

Avocado Ltd produces small electronic components for kitchen appliances.Two of its products are Component Y and Component Z.The selling price of Component Y is $15,and the selling price of Component Z is $20.The variable cost per unit for Component Y is $8 and the variable cost per unit of Component Z is $11.The machine hour requirement and demand for the two products are:
Avocado Ltd's production capacity is 6500 machine hours per month.The optimal product mix is:

Accepted Answer

The answer of Avocado Ltd produces small electronic components for...

Question 4

The marginal revenue - marginal cost paradigm,is valid for all forms of economic market including the oligopolistic market.

Accepted Answer

In oligopolistic markets, firms often consider the reactions of their competitors when making pricing and output decisions, which can deviate from the simple marginal revenue equals marginal cost rule that applies in perfectly competitive markets.

Question 5

Linear programming is a tool used to determine an optimal solution given a number of constraints,by identifying linear relationships between decision variables.

Accepted Answer

Linear programming is based on the concept of linear relationships between decision variables and is used to find optimal solutions by considering constraints.

Question 6

Price elasticity is the term used to describe the impact of price changes on sales volume.

Accepted Answer

Price elasticity measures the sensitivity of consumers to changes in price and how it affects the demand for the product or service. So, the statement is true.

Question 7

When decisions are being made about unprofitable products,one of the options available to managers is to retain the loss-making product particularly if it forms a part of a range of products that the firm wishes to sell.

Accepted Answer

This statement is true. Retaining an unprofitable product may make sense if it complements other products in the company's portfolio and helps attract and retain customers.

Question 8

Capacity has no real impact on bids submitted by firms in a competitive bidding scenario.

Accepted Answer

Capacity can have a significant impact on bids submitted by firms in a competitive bidding scenario. Firms with higher capacity may be able to offer lower prices due to economies of scale, while firms with lower capacity may have to charge higher prices to cover their fixed costs. Additionally, firms with higher capacity may be able to complete the project faster, which can be valued by the buyer and give them a competitive edge in the bidding process.

Question 9

Value-based pricing refers to:

Accepted Answer

Value-based pricing is a pricing strategy that takes into consideration the customer's perceived value of the product or service being offered. It is based on the idea that customers are willing to pay a higher price if they believe that the product or service provides value and meets their needs. This pricing strategy allows companies to differentiate themselves from their competitors and increase profitability by charging a premium for their products or services.

Question 10

The management accountant's role in product mix decisions is to provide adequate information to allow linear programming to be utilised in the decision.

Accepted Answer

The management accountant plays a crucial role in providing relevant data and analysis to aid in product mix decisions, including the use of linear programming techniques to optimize profit and costs.

Question 11

Which of the following is not prohibited by the ACCC?

Accepted Answer

The ACCC does not prohibit a company from using its market power to bulk purchase for cost advantages, as this can be a legitimate business strategy.

Question 12

Cost-plus pricing formulas can only be used with full cost models.

Accepted Answer

Cost-plus pricing can be applied using either full cost (which includes fixed and variable costs) or variable cost models, not exclusively full cost models.

Question 13

Gossip Goose (GG)is a magazine renowned for their reporting of unverifiable entertainment news.Dee Hassaloff is the marketing director of GG.Recently,Hassaloff decided to lower the price of GG to $2 in order to drive out some of the smaller competitors.Hassaloff's behaviour is best described as an example of:

Accepted Answer

Hassaloff's decision to lower the price of GG to drive out smaller competitors is an example of predatory pricing. This is a strategy where a larger company sets a very low price for its products or services with the intention of driving out competition in the short term. Once the competition is eliminated, the company can then raise the price back to its original level or higher. This practice is illegal in many countries.

Question 14

Avocado Ltd produces small electronic components for kitchen appliances.Two of its products are Component Y and Component Z.The selling price of Component Y is $15,and the selling price of Component Z is $20.The variable cost per unit for Component Y is $8 and the variable cost per unit of Component Z is $11.The machine hour requirement and demand for the two products are:
Both Component Y and Component X have to undergo the machining process first,followed by a manual polishing labour process.Avocado Ltd's capacity is 6500 machine hours and 6500 labour hours.The top priority of Avocado Ltd in terms of managing constraints is:

Accepted Answer

The constraint for Avocado Ltd is the limited capacity of machine hours and labour hours. Therefore, the best choice is to invest in additional machines to increase the capacity and production of both Component Y and Component Z. Increasing demand for Component Z or lowering the price of Component Y may lead to more sales, but it may also increase the strain on the company's limited resources, ultimately exacerbating the capacity constraint. Training employees to improve productivity in relation to polishing may also help but would not be as effective in increasing capacity as investing in additional machines.

Question 15

When a supplier dictates the minimum price at which a product or service is to be resold by a buyer to the retail or wholesale market,the supplier is said to be practicing the restricted practice of resale price maintenance.

Accepted Answer

This is because when a supplier dictates the minimum price at which a product or service is to be resold by a buyer to the retail or wholesale market, it restricts the buyer's ability to set their own prices and maintain free market competition, hence the term "resale price maintenance."

Quiz 20: Pricing and Product Mix Decisions