MK 303 Chapter 18
A retailer of men's suits who is advertising a popular brand of dress shirts at a reduced price to attract customers is using:
leader pricing.
An item costs a retailer $140. If a 30 percent markup is desired, what should the retail selling price be?
$200.00
Sam's Club purchases a 24-pack of bottled water from a wholesaler for $3.85 and wants a markup of 25 percent. What is the price that Sam's Club charges its customers?
$5.13
A producer sells an item to a wholesaler for $4.00, and the wholesaler uses a markup of 25 percent on its selling price. What will be the cost to the retailer?
$5.33
A firm that is using marginal analysis to set prices finds that setting a price of $180 per unit would result in the sale of 6 units. The total variable cost of production is equal to $300 and total fixed cost is equal to $150. In this case, the firm's total revenue will be _____.
$1,080
A college "marketing club" printed 1,000 "We're Number 1" bumper stickers for sale at $3.00 each as a fund-raiser. Its fixed costs were $500, and the variable cost for each sticker was $.50. The club's average cost per unit was:
$1.00.
High Meadow Mfg. Co. sold its product through wholesalers and retailers-allowing the wholesalers a markup of 25 percent and retailers a markup of 40 percent. If the retail selling price is $100 and the manufacturer's cost is $30, what markup in dollars did High Meadow receive on the sale of this product?
$15.00
A company that produces baseball caps has fixed costs of $100,000, total variable costs of $40,000 for a production volume of 20,000 units. The average variable cost per unit is:
$2.00.
A large supermarket chain purchases a box of cereal from a food wholesaler. If the supermarket chain uses a markup of 20 percent on its selling price of $2.85, what is the price the supermarket chain paid the food wholesaler?
$2.28
A cutlery manufacturer producer produces 200 units of output at a total cost of $1,500. If total variable costs are $500, the average variable cost (per unit) is ______.
$2.5
200 units of a good were produced at a total cost of $4,000. Given that total fixed cost was equal to $1,800, the average total cost per unit will be equal to _____.
$20
The quarterly operating statement for a firm gives the following information: Number of pieces manufactured: 100 Number of pieces sold: 100 Total cost of goods sold: $800 Average cost of single piece: $5 Net sales: $1,000 It can be inferred that the firm's gross margin is _____.
$200
A company has total fixed cost of $400,000. Its fixed-cost contribution per unit is $10.00, and its price per unit is $5.00. What is the break-even point in sales dollars?
$200,000
A producer makes an item for $32 and sells it with a 50 percent markup to a wholesaler. The wholesaler then applies a 20 percent markup. A retailer then uses a 60 percent markup. The final retail selling price is:
$200.00.
A firm with a stockturn rate of 4 sells products that cost it $100,000. This requires _____ worth of inventory.
$25,000
A firm with a stockturn rate of 5 that sells products that cost it $150,000 per year is keeping an average of _____ worth of inventory.
$30,000
Wilson sells a basketball to a wholesaler for $16, and the wholesaler applies a 20 percent markup. A retailer then applies a 33.3 percent markup. The final selling price is:
$30.00.
Given the following data, compute the BEP in DOLLARS: Selling price = $2.00 Variable cost = $1.00 Fixed cost = $150,000
$300,000
Blue Ridge Weavers wants to set its selling price on an item so that the retail list price will be $50-taking into account the usual markups of 10 percent at wholesale and 30 percent at retail. At what price should Blue Ridge Weavers sell the item?
$31.50
A retailer pays a wholesaler $24.00 for an item and then sells it with a 25 percent markup. The retailer's selling price is:
$32.00.
A firm with a stockturn rate of 5 sells products that cost it $100,000. Its annual inventory carrying cost is about 20 percent of the inventory value. What is its annual inventory carrying cost?
$4,000
The total fixed costs are $10,000, and the average variable cost per unit is $3. For a production volume of 10,000 units, the average cost per unit is ______.
$4.00
If a retailer's annual stockturn rate shifted to 20 from 5, then selling products costing $100,000 would require ______________ rather than $20,000 in working capital to carry the needed inventory.
$5,000
A producer incurred costs of $54,000 for labor and materials and $26,000 for fixed overhead expenses in a year. The firm produced 20,000 units during the year. If the producer desires a profit of $1 per unit in the coming year, what should the producer's selling price be using average-cost pricing?
$5.00.
The production cost of an automobile component is $45. The producer takes a 10 percent markup and sells the product to the wholesaler. What is the wholesaler's cost?
$50
Mark is trying to determine his firm's average cost per unit of production. He finds that the cost for all labor and materials is $80,000 and fixed overhead expenses are $40,000. If the company produces 20,000 items in the time period, the average cost is ______.
$6
It costs a producer $400 to manufacture a product that is distributed through wholesalers and retailers. The markups at the producer, wholesaler, and retailer levels are 20%, 20% and 50%, respectively. The wholesaler's selling price for the product is __________, and the retailer's selling price is ___________.
$625; $1250
A producer sells an item to a wholesaler for $4.00, and the wholesaler uses a markup of 25 percent on its selling price and the retailer uses a markup of 30 percent on its selling price. What will be the retailer's selling price to its customers?
$7.61
A producer with only one product has total fixed costs of $15,000 per month. In addition, it cost the producer $100 in variable costs to produce each unit of his product (raw materials and direct labor cost). The producer charges his wholesalers $125 per unit. What is the sales amount to break even?
$75,000
Which of the following prices is most likely to be seen if a firm is using odd-even pricing?
$99.95
You are considering opening a fast-food store. Your fixed costs for the required land, building, parking lot paving, kitchen equipment, and neon sign will be $1,000,000. The variable cost will be $1.89 for servings which will sell for $2.89. How many servings must you sell to break even?
1,000,000
Spruce Pine Mfg. Co. has total fixed costs of $300,000 a year. The owner estimates that average variable costs for its product will be about $30 next year. The selling price to wholesalers will be $50. The break-even point is ______.
15,000 units
Given the following data, compute the BEP in units: Selling price = $2.00 Variable cost = $0.75 Fixed cost = $250,000
200,000
Given the following data, determine the break-even point in units: Total fixed cost = $120,000 Variable cost per unit = $0.60 Selling price per unit = $1.10
240,000
Walgreens Drugstores buys a bottle of shampoo from a wholesaler for $3.25 and then places it on a shelf with a price tag of $4.64. What is Walgreens' markup on selling price (expressed as a percent)?
30 percent
The Horizons Cycle Shop bought 3 motorcycles for $2,100, and sold each one for $1,000. The markup percent was:
30.
A retailer buys a particular product for $4. To make a profit, the retailer adds $2 to cover operating expenses and provide a profit. The percentage markup on the $6 selling price is ______.
33.33 percent
If a firm's total fixed cost is $400,000 and its fixed cost contribution per unit is $10, its break- even in units is ______.
40,000
The price per unit is $1.00. The average variable cost per unit is 60 cents. The total fixed cost is $20,000. Compute the break-even point.
50,000 units
A producer with only one product has total fixed costs of $15,000 per month. In addition, it cost the producer $100 in variable costs to produce each unit of his product (raw materials and direct labor cost). The producer charges his wholesalers $125 per unit. How many units of the product does the producer have to sell each month in order to break even?
600 units
A company has total fixed cost of $120,000. Its variable cost per unit is $2.00 and its price per unit is $3.50. The break-even point in units is:
80,000
Which of the following is a TRUE statement about markups?
A firm can lose money even when using a high markup.
Regarding "full-line pricing," which of the following statements is TRUE?
A. A good marketing manager usually tries to price products in a line so that the prices will seem logically related and make sense to target customers. B. The marketing manager should try to cover all costs on the whole product line. C. Most customers seem to feel that prices in a product line should be somewhat related to cost. D. Not all companies that make a line of products must use full-line pricing. E. All of these statements about "full-line pricing" are TRUE.
Average-cost pricing:
A. May be very profitable if actual sales are higher than expected. B. May lose money for the firm if actual sales are less than expected. C. Does not take demand into account in setting prices. D. Is simple in theory but often fails in practice. E. All of these alternatives are correct.
Which of the following pricing approaches specifically considers the concept of elasticity of demand?
A. break-even pricing. B. average-cost pricing. C. markup pricing. D. markdown pricing. E. None of these considers the concept of elasticity of demand.
Marginal analysis:
A. can be very useful if a firm's pricing objective is profit maximization. B. focuses on the last unit which will be sold. C. can be used to find the most profitable price and quantity. D. can help find the price that results in the greatest difference between total revenue and total cost. E. All of these alternatives are correct.
Total variable cost:
A. is zero when the quantity produced is zero. B. is the sum of those changing expenses that are closely related to output. C. may increase as the quantity produced is increased. D. All of these alternatives are correct.
Customers are likely to be more price sensitive when:
A. the total expenditure is great. B. they have to pay the bill themselves. C. the end benefit isn't very significant. D. they haven't yet spent any money related to the purchase. E. All of these alternatives are correct.
A typical break-even analysis assumes that:
A. the total revenue curve is a straight line. B. the demand curve faced by the firm is horizontal. C. the average variable cost is the same at different levels of output. D. profits will grow continually beyond the break-even point. E. All of these are assumptions of a typical break-even analysis.
Break-even charts usually assume that:
A. total cost and total revenue curves are straight lines. B. profits will grow continually beyond the break-even point. C. the break-even point is reached when total cost just equals total revenue. D. any quantity can be sold at the assumed price. E. All of these are assumptions of break-even charts.
Which of the following statements is true about break-even analysis?
It makes it appear that any quantity can be sold at the assumed price.
Which of the following costs decrease with increase in output?
Average fixed cost per unit
Identify the type of pricing that offers a specific price for each possible job rather than setting a price that applies for all customers.
Bid pricing
When CenturyLink attracts residential customers by setting one monthly fee for high-speed Internet, cable TV, and long-distance phone services that is $40 less than the price of purchasing these three services separately, this is an example of ______.
Bundle price
_____ is setting a few price levels for a product line and then marking all items at these prices.
Price lining
Which of the following would NOT be included in a producer's total fixed cost?
Component parts
Which of the following observations concerning a "reference price" is true?
Demand may increase if a firm's price is lower than a customer's reference price.
In a down economy, a local florist surveys her customers to determine the amount they feel comfortable spending for a bouquet of flowers. Then she displays bouquets costing that exact amount in her refrigerated case. This is an example of ______.
Demand-backward price
Which of the following is an example of a fixed cost?
Depreciation
Which of the following would NOT be included in a firm's total variable cost?
Depreciation on buildings
Which of the following applies to "value in use pricing?"
How much will the customer save?
Which of the following statements is true about break-even analysis?
It assumes that the demand curve is perfectly horizontal at the selling price.
Identify the main advantage of price lining.
It can simplify both buying and selling.
Identify a disadvantage of break-even analysis.
It does not consider the effect of price on the quantity that consumers will want.
Which of the following statements is true about average cost-pricing?
It does not take the demand curve into account when setting prices.
Which of the following statements is true about marginal analysis?
It explicitly considers demand when calculating price.
Identify a weakness of the average-cost approach.
It ignores competitors' costs and prices.
Which of the following statements is a characteristic of leader pricing?
It is different from bait pricing in that the marketing manager really expects to sell leader priced items.
Which of the following statements is true about marginal analysis?
It reveals the range of prices that should be profitable.
Which of the following statements concerning "reference prices" is FALSE?
Leader pricing is normally used with products for which consumers do not have a specific reference price.
What is the best pricing tool marketers have for looking at costs and revenue at the same time?
Marginal analysis
Which of the following pricing tools combines both, the cost-oriented price setting approach as well as the demand-oriented price setting approach?
Marginal analysis
Which of the following is an example of a cost-oriented price setting approach?
Markup pricing
Michael Soles-owner of Soles Shoe Store-recently discovered that shoe stores in his trading area have an average markup of 40 percent. Upon investigation, Michael found that his average markup is $15 on shoes that he sells for $45. This suggests that ______.
Michael is taking a smaller average markup than his competitors
Which of the following statements concerning "negotiated price" is FALSE?
Negotiated pricing is not a demand-oriented approach.
Which of the following observations is false?
Negotiated pricing is rare in situations where the marketing mix is adjusted for each customer.
Which of the following is an example of a variable cost for a producer?
Packaging materials
If Macy's department store prices its men's ties at $10 intervals between $38 and $68, this is an example of ______.
Price lining
Identify the type of pricing that involves setting one price for a set of products.
Product bundle pricing
When consumers decide to purchase a music CD from Amazon.com, the company's website often suggests that consumers purchase an additional CD by the same artist for a combined price that is lower than the two CDs would sell for separately. Amazon.com is using ______.
Product-bundle pricing
Fly-Right Travel Agency arranges vacation packages to Disney World in Florida. The price includes airfare, a rental car, deluxe accommodations, and tickets to Disney World and other attractions. Fly-Right is using:
Product-bundle pricing.
Henry has classified the following items under variable costs. Which item has he classified incorrectly?
Property taxes
_____ are costs that a customer faces by buying a product that is different from what has been purchased or used in the past.
Switching costs
The main advantage that marginal analysis has over most other popular pricing methods is that it:
Takes into account both costs and demand.
Which of the following observations is true?
The break-even point can also be figured in dollars.
In marginal analysis, the most profitable price is the price at which:
The difference between total revenue and total cost is greatest.
Identify the correct statement about the relationships between quantity, cost, and price based on the cost-oriented pricing model.
The estimated total number of units to be sold usually determines the average fixed cost per unit.
Which of the following statements is true about break-even point (BEP)?
The firm's total cost will equal its total revenue.
TopKnotch Mfg. Co. has a production cost of $280. It sells its product to a wholesaler for $400. The wholesaler then sells the item to retailers for $500 and the retailers sell the item for $1,000. Which of the following is true about this "markup chain?"
The manufacturer is taking a markup of 30 percent.
Which of the following costs do not change with an increase in output?
Total fixed cost
With regard to bid pricing, a marketing manager should be aware that ______.
a big problem is estimating all the costs-including the variable and fixed costs that apply to a particular job
Best Buy sets its prices below other electronics stores in its service area and generally attracts more customers than the others. Best Buy apparently hopes to earn a profit by
achieving a high stockturn rate.
The text says "markups":
are a percentage of selling price-unless otherwise stated.
Regarding break-even analysis, a good marketing manager knows that ______.
assuming a straight-line total revenue curve incorrectly suggests that any quantity can be
When a firm's average variable cost is constant-no matter how much is produced-then the firm's:
average cost will decrease as the quantity produced increases.
As output increases, average cost decreases continually because
average fixed cost per unit is decreasing.
Setting prices by adding a "reasonable" markup to a firm's average cost is called:
average-cost pricing.
A computer store regularly advertises a very low price for a well-known brand of disks. When the customers come in, however, the salespeople point out the disadvantages of this particular brand and try to persuade them to buy other disks at much higher prices. This retailer is using:
bait pricing
A retail store advertises an SLR digital camera for $350. Once bargain hunters come to the store, salespeople point out the disadvantages of the low-priced camera and try to convince them to trade up to a better, and more expensive, unit. This is an example of ______.
bait pricing
A tire retailer is advertising a very low price on a popular size tire. When a customer comes into the store, the clerk says the low-priced item is sold out, and tries to convince the customer to buy the top-of-the-line model-claiming the low priced model is not a very good buy even at the low price. This is an example of:
bait pricing
A retailer who advertises a low price on an item-with no intent to sell that item-but only to attract customers to try to sell more expensive products is using:
bait pricing.
Different firms in the same line of business are likely to use the same markup percent:
because they are likely to have similar operating expenses.
A firm is looking to construct a new office. It puts out a request for proposals from contractors inviting their price quotations given certain defined specifications. This is an example of ______.
bid pricing
If a service firm sets a specific price for each possible job-rather than setting a standard price for all potential customers-it is most likely using:
bid pricing
A paving contractor wants to work on road construction contracts administered and paid for by the state government. The contractor submits a sealed proposal to the state department of transportation for each construction job. The proposal contains a description of how the contractor will fulfill the specifications for the job at a specified price. The contractor is engaging in:
bid pricing.
A firm in monopolistic competition with a down-sloping demand curve ______.
can use marginal analysis to help it maximize profits
Break-even analysis can be useful for ______.
comparing pricing alternatives
When Nintendo sets a relatively low price on its game units to stimulate more demand for its game cartridges, it is using ______.
complementary product pricing
The two basic approaches to price setting are ______.
cost-oriented and demand-oriented price setting
Most firms in the business world set their prices using:
cost-oriented price setting.
Average fixed costs:
decrease steadily as output increases.
Good Health Co. has set a suggested retail list price of $40 on its new vitamin tablets on the assumption that its target market will find the product attractive at this price. From this suggested retail list price, Good Health has subtracted its usual chain of markups for wholesalers and retailers to obtain its own selling price of $17. This is ______.
demand-backward pricing
Regarding markups and turnover:
depending on the industry-a stockturn rate of 1 or 2 may be quite profitable.
A markup chain:
determines the price structure in a channel of distribution.
The basic problem with the average-cost approach is that it
does not consider cost variations at different levels of output.
Retailers of which of the following products would probably have the highest stockturn rate?
fresh seafood
A standard markup is often set close to the firm's ______.
gross margin
Average-cost pricing may lead to losses because there are a variety of costs-and each changes
in a different way as output changes.
Total cost:
increases directly with increases in total variable cost.
A disadvantage of average-cost pricing is that it ______.
is easy to lose money with average-cost pricing
In a typical break-even analysis, a firm's fixed-cost contribution per unit ______.
is the assumed selling price per unit minus the variable cost per unit
Total fixed cost:
is the sum of those costs which do not change in total no matter how much is produced.
A good marketing manager for a producer knows that the most profitable price and level of output:
is where the positive difference between the total revenue and total cost curves is the greatest.
The major weakness of "average-cost pricing" is that:
it ignores likely customer demand at different prices.
The big problem with average-cost pricing is that:
it ignores the firm's demand curve.
A CVS drugstore that is trying to attract customers by advertising a special bargain price on a popular brand of cold remedy during the cold season is using:
leader pricing
If a supermarket runs an ad for a gallon of milk in the local newspaper at a price that many consumers will recognize as a low price for this product, this is an example of:
leader pricing
Walgreens Drugstores advertises that its Tylenol prices are "the lowest in town" in order to stimulate sales of other products along with Tylenol. This is an example of ______.
leader pricing
Regarding markups and turnover:
low stockturn rates increase costs by tying up working capital in inventory.
A _____ is a dollar amount added to the cost of products to get the selling price.
markup
The sequence of markups firms use at different levels in a channel is referred to as a ______.
markup chain
If a profit-oriented marketing manager doesn't know the exact shape of the firm's demand curve, marginal analysis:
may be useful anyway-because a profitable region usually surrounds the best price.
"Average-cost pricing":
might cause a firm to charge too high or too low a price-and reduce its profits.
Gross margin is expressed as ______.
net sales minus cost of goods sold
Some retailers commonly use prices that end in certain numbers. They seem to assume that their customers see prices with these numbers as substantially lower. This is:
odd-even pricing
A sales rep is paid a commission on each product sold. The commission is:
part of the total variable cost.
Setting relatively high prices to suggest high-quality or high-status is ______.
prestige pricing
Some consumers maintain a "price-quality association," meaning that if a product has a high price, they assume the product must have high quality. This "price-quality association" is the basis for the use of ______.
prestige pricing
The idea that people will pay extra for "quality" and status is the idea behind ______.
prestige pricing
Which of the following pricing approaches should be used by a profit-oriented retailer if its demand curve is down-sloping to the right for a while-but then actually bends back to the left at lower prices?
prestige pricing
Setting a few price levels for a product line and then marking all items at these price levels is ______.
price lining
Alex's Knot Shop prices its ties at $5 intervals from $10 to $25 because most customers find these prices appealing and easier to compare. This is:
price lining.
The Roulette Corporation, a video game manufacturer, sets a single price for a set of 5 video games, a video game console, and a pair of speakers. This pricing strategy is called _____.
product-bundle pricing
When Walgreens Drugstore advertises one price for the cost of a roll of film and the cost of processing it, it is using ______.
product-bundle pricing
Gabriella Sax believes that customers in her dress shop find certain prices very appealing. Between these price levels, all prices are seen as roughly the same-and price cuts in these ranges generally do not increase the quantity sold (i.e., the demand curve tends to drop vertically within these price ranges). Therefore, Sax prices her items as close as possible to the top of each such price range. This is ______.
psychological pricing
Some retailers feel that their potential customers find certain prices appealing, but between these prices the customers see prices as roughly the same-and thus price cuts within these ranges will not increase the quantity sold (i.e., the demand curve is vertical within these "same price" ranges). These retailers would probably use ______________ if they want to maximize profit.
psychological pricing
A high stockturn rate:
reduces the inventory investment and can improve profits.
Marci, a student, is used to paying $1.25 for a 12-ounce can of Diet Coke from various vending machines on campus, so she expects the new vending machine just installed outside her Chemistry classroom to charge her the same amount for her favorite beverage. For Marci, the $1.25 price is a ______.
reference price
High markups on a product could lead to low profits when ______.
sales dip due to high prices
Identify the first step in the markup chain.
selecting the appropriate cost per unit
The typical markup (percent) is the ______.
selling price minus the cost of the item, divided by the selling price-times 100
"Markup" means percent of ______.
selling price-unless otherwise stated
Value in use pricing
sets a price that will capture some of what customers will save by substituting the firm's product for the one currently being used.
"Demand-backward" pricing:
starts with an acceptable final consumer price and works backward to what producers can charge.
Total fixed cost
stays the same even if production stops temporarily.
A regional manager for a chain of auto parts stores visits one of the stores in the chain. He looks in the store's warehouse and finds about 100 cases of motor oil that have been sitting in the warehouse for over one year. Upon inspection, he finds that in each case, one of the twelve cans of oil has leaked, thus soaking through the box and making the case unfit for sale. The regional manager instructs the store manager to unpack all of the cases, discard the leaking cans, clean up the remaining cans, and to contact the oil company for new boxes. He tells the store manager to repackage the remaining cans in the new boxes and to sell the cases to customers at the retailer's cost with no added markup. He explains to the store manager that moving this inventory will not result in immediate profit, but that it will benefit the store by improving the ______.
stockturn rate
The number of times an intermediary's average inventory is sold in a year is called the:
stockturn rate.
Regarding pricing:
the FTC considers bait pricing a deceptive act and has banned its use in interstate commerce.
Regarding bid pricing:
the big problem for sellers is estimating all the costs-including the variable and fixed costs that apply to a particular job.
A publisher needed one of its best-selling authors to fly from his home in Richmond, Virginia to Chicago, Illinois in order to start a publicity campaign for the author's new book. The author could have taken a flight to Detroit, Michigan, changed planes, and then flew on to Chicago for about half the price of a non-stop flight from Richmond to Chicago. However, he chose the non-stop flight. He became less price sensitive because of ______.
the fact that someone else was paying the bill
Customers are likely to be less price sensitive ______.
the greater the significance of the end benefit
Customers tend to be more price sensitive ______.
the greater the total expenditure
The stockturn rate is ______.
the number of times the average inventory is sold in a year
"Stockturn rate" means:
the number of times the average inventory is sold in a year.
All of the following observations concerning markups are true except
they are usually stated as dollar amounts.
Consumers are more likely to be price sensitive when _____.
they have many substitute ways of meeting a need
A low stockturn rate
ties up working capital.
Average cost is obtained by dividing ______.
total cost by the related quantity
A firm's "break-even point" is that point where:
total cost just equals total revenue
The sum of those costs that do not change in total-no matter how much is produced-is called:
total fixed cost.
The BEP, in units, can be found by dividing ______.
total fixed costs by the fixed cost contribution per unit
The price that maximizes profit is the one that results in the greatest difference between ______.
total revenue and total cost
The sum of those changing expenses which are closely related to output is called:
total variable cost.
An intermediary seeking high profits should ______.
try to find the markup level related to the most profitable price
In order to stand apart, the airline Fly High Air offers low airfares and heavy seasonal discounts. However, it charges its passengers for in-flight meals, water, and baggage service as opposed to its competitors who offer these services for free. Fly High Air is following a(n) _____ pricing strategy.
unbundled
A firm that sets prices such that consumers will save 15% of their fuel costs by buying its products is employing _____.
value in use pricing
An automobile manufacturer charges a higher price for its "hybrid" car that runs on both electricity and gasoline than it charges for a car that runs on only gasoline. The manufacturer contends that the consumer will save money with the hybrid car in the long run because the money saved on gasoline will more than cover the price differential between the hybrid car and a regular car. This manufacturer is using ______.
value in use pricing
Sellers sometimes take the auction approach and adapt it by using sequential price reductions over time. When or where is this approach most commonly used?
with products that have a short life
At zero output, total variable cost is
zero.