UNT MKTG 3650 Thompson Exam 3

Bringing together relatively small quantities purchased from suppliers and combining these quantities into a single larger shipment for sale to a buyer is called:

Accumulating

One of the major difficulties of zone-delivered pricing is determining zone boundaries:

so as to avoid charges of illegal price discrimination.

Ralston-Purina, with its lines of cereal, snack foods, and pet foods has such brand equity and market position that it is able to coordinate distribution activities through is market power. Its distribution illustrates a(n):

. Administered VMS.

Saul Monehan sells a wide assortment (in small quantities) of "emergency" home repair items (fuses, electrical tape, small packets of nails) to grocery and convenience stores. He owns the products he handles, and displays them for his customers. Saul is a:

. Rack jobber

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? (round to the nearest penny. Include the dollar sign in your answer)

$15.00 This is nothing more than a slightly disguised backward chain mark-up pricing problem. Start by finding the price to the retailer: $100 x (1-.4) = $60. Next, find the price to the wholesaler: $60 x (1-.25) = $45.00. The producer's cost is $30. Therefore, the dollar mark-up must be $45.00 - $30.00 = $15.00

A retailer pays $75 for a leather jacket and desires a 65% mark-up on products of this type. What will be the price to consumers for this jacket (round to the nearest penny and include the dollar sign)?

$214.29 This is a straight-forward application of markup pricing, where the markup is based on the anticipated retail selling price of the product: Price = $75 / (1-.65) = $214.2857 or $214.29 (rounded)

On May 15, Ann's Café received a $265 invoice for restaurant supplies. The invoice offered the following terms, "3/14, n/30." If Ann pays the invoice by May 25, she should make her check out for: (Round to the nearest penny. Include the dollar sign.)

$257.05 Since the bill was paid within 10 days, Ann can deduct 3% of the invoiced amount from her bill. She will pay $265 - $7.95 = $257.05.

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? (round to the nearest penny. Include the dollar sign)

$31.50 This is an application of backward chain mark-up pricing. Start with the retail selling price of $50 and work bacward to determine the price the producer must set to the wholesaler. The price to the retailer is $50 x (1 - .30) = $35. The price to the wholesaler must, therefore, be: $35 x (1 - .1) = $31.50

A retailer pays a wholesaler $24.00 for an item and then sells it with a 50 percent markup based on cost. The retailer's selling price is:

$36.00 This problem is used to reinforce the differences between mark-up pricing based on selling price and mark-up pricing based on cost.

The total fixed costs for a manufacturer of road maps is $25,000, and its unit variable cost is $3. The company sells 20,000 maps and just breaks even. What is the map's selling price? (round to the nearest penny)

$4.25 This is an application of the break even formula in which you must solve for price rather than unit sales. Solving the break even formula for price yields: Price = (TFC / BE(Q)) + AVC Price = ($25,000 / 20,000 units) + $3.00 Price = $1.25 + $3.00 = $4.25

Six ounces of Charlee's Gourmet Beef Jerky sell for $13.50. The fixed costs for its manufacturer totals $16,000, and each 6-ounce package of beef jerky has a variable cost of $9.50. Compute the dollar break even point. (Round your answer to the nearest dollar)

$54,000 Finding the break even point in dollars can be done in two ways. The simplest way is to first compute break even in units and then multiply the result by the price per unit. Break even in units is given by: BE(Q) = TFC / (P-AVC) = $16,000 / ($13.50 - $9.50) = $16,000 / $4.00 = 4,000 units The break even point in dollars is, therefore, 4,000 units x $13.50 or $54,000. The break even point in dollars can be found directly by dividing TFC by the percent contribution margin of ($13.50 - $9.50) / $13.50 = .2963. The break even point is: $16,000 / .2963 = $53,9999.325 or $54,000.

A manufacturer sells a product for $35 to a wholesaler, and the wholesaler sells it to a retailer. The wholesaler's normal markup (based on selling price) is 20%. The retailer prices the item to consumers to include a 30% markup (also based on selling price). What is the selling price to the consumer? (Round your answer to the nearest penny. Include the dollar sign.)

$62.50 This is a problem in forward chain mark-up pricing. The answer is obtained by applying the mark-up based on selling price to each level in the channel: 1. Price to the wholesaler is: $35 (given). 2. Price to the retailer is: $35 / (1-.2) = $43.75 3. Price to the consumer is: $43.75 / (1-.3) = $62.50

A manufacturer of a very labor-intensive product wishes to employ the 'experience curve' to predict the AVC associated with various levels of cumulative production volume. Based on the first lot of 1,000 units, AVC are $12.50 per unit. You may assume that this level of AVC is attained at the point where the first 1,000 units is produced. The producer expects an experience constant or rate of about .9. The producer can expect AVC of ____________ with the third doubling (within $.10).

$9.11

Which of the following channels for consumer goods is Avon using when it sells its products at the avon.com website?

. A direct channel to consumers

Which of the following retailers is most likely to be involved in a retailer cooperative?

. A hardware store

Cash discount terms of 2/10, net 60 on an invoice would--in effect-- amount to borrowing at an annual interest rate of about ________ percent if the buyer did not pay the invoice within the 10 days allowed.

14 If the bill is paid within 10 days, the buyer can deduct 2% from the invoiced amount. Otherwise the bill is due in 60 days. If the buyer does not pay within 10 days, he or she is essentially 'borrowing' the invoiced amount for 60 - 10 = 50 days at 2% interest. The equivalent annualized interest rate is found by finding the approximate number of 50-day periods in a year. There are 365/50 = 7.3 (round to 7). The interest rate is 7 x 2% or 14%.

A _____ essentially substitutes for a marketing department by marketing a manufacturer's entire output.

Selling agent

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 $35 next year. The selling price to wholesalers will be $50. If total industry sales are expected to be about $5,000,000 next year, what market share does Spruce Pine need to break even? (Round to the nearest 1 percent.)

20% Break even for the producer in units is: BE(Q) = TFC / (P-AVC) = $300,000 / ($50 - $35) = $300,000 / $15 = 20,000 units. The break even in dollar sales is, therefore, 20,000 x $50 = $1,000,000. Since industry sales are expected to be $5,000,000, the manufacturer must obtain $1,000,000 / $5,000,000 x 100 or 20% market share to achieve break even.

The rent for a booth at the flea market is $100 per month. The variable cost per hanging basket sold is $6. The selling price for each basket is $10. Calculate the break-even point in units. (round to the nearest unit)

25 units This is the simplest possible break even problem requiring only a direct application of the break even formula: BE(Q) = TFC / (Price - AVC) = $100 / ($10 - $6) = $100 / $4 = 25 units.

The Horizons Cycle Shop bought 3 motorcycles for $2,100 and sold each one for $1,000. The markup percent (based on selling price) was closest to:

30% Each bike costs $2,100 / 3 = $700. Each bike sells for $1,000. The dollar mark-up, therefore, is $1,000 - $700 = $300. The percent mark-up based on selling price is $300 / $1,000 x 100 = 30%.

DrainKing produces an excellent professional drain-cleaning machine sold to plumbing businesses. The total variable costs for making each unit are $325.00. DrainKing's average selling price for the unit is $750.00. DrainKing's fixed costs of production and sales are $4,500 per month. If DrainKing desires $10,000 in profit each month, how many units must it sell each month? (round to the nearest unit)

34 units or 35 units This is an application of the break even formula in which a desired level of target profit is identified. The standard break even formula applies, with exception that the desired profit is added to the TFC in the numerator of the formula: BE(Q) = (TFC + Profit)/(Price - AVC) Applying the numbers from the problem yields: BE(Q) = ($4,500 + $10,000) / ($750 - $325) = $14,500 / $425 = 34 units (rouned down) or 35 units (rounded up).

Assume that you are estimating the demand curve for a product using buy-response data and have collected the following via a survey: Price % Who Will Buy 5.00 1% 4.75 10% 4.50 25% 4.25 45% 4.00 60% 3.75 75% 3.50 90% Assume that research suggests that your target market consists of approximately 500,000 persons. You anticipate that each buyer will purchase an average of 1.5 units of the product. What level of demand can you expect at the $4.00 price? (round to the nearest unit).

450,000 units

Appstate sells bean mixes for soups. The company produces 2,000 packages per day. The total variable cost for making one bag of Mexicali bean soup is $3. The average fixed cost per bag is $.90. The company charges $6.50 per bag and earns a 40 percent profit. Calculate the break-even point in units. (round to the nearest unit)

514 units or 515 units The break even point in units is given by: BE(Q) = TFC / (P-AVC) Total Fixed Costs are found by multiplying the anticipated production (and sales) volume of 2,000 units by the value given for fixed costs per unit: TFC = 2,000 units x $.90 = $1,800. BE(Q) is now found by subsituting all values into the formula: BE(Q) = $1,800 / ($6.50 - $3.00) = $1,800 / $3.50 = 514.28 units or 514 units (rounded down). Note: In practical application, most managers would round up to the nearest unit, making the answer 515 units.

In a corporate vertical marketing system,

A firm at one level of the channel owns the firms at the next level or owns the entire channel.

Which of the following is least likely to be a condition necessary for employing a skimming pricing strategy?

A large, highly price-elastic market exists for the product

Midway Plumbing, Inc. buys plumbing supplies, pipes, and tools from different manufacturers and resells them to construction companies. Midway is MOST LIKELY:

A merchant wholesaler

A tying contract may be legal if:

A new, small company is trying to enter the market

A manufacturer of a very labor-intensive product wishes to employ the 'experience curve' to predict the AVC associated with various levels of cumulative production volume. Based on the first lot of 1,000 units, AVC are $12.50 per unit. You may assume that this level of AVC is attained at the point where the first 1,000 units is produced. The producer expects an experience constant or rate of about .9. The experience constant or experience rate is interpreted as:

AVC declines by 10% with each doubling of cumulative output

A manufacturer could try to defend itself against charges of price discrimination under the Robinson-Patman Act by claiming that:

All of the above

The manager of the Yazoo City Catfish Producers knows the market for its catfish is geographically quite large. Price and supply conditions vary considerably from season to season. Since Yazoo City can sell its catfish only a few months each year, it does not need continuous market representation. The catfish producers should use a:

Broker

Consumers normally pay for film and processing separately. When Eckerd Drugstores advertises one price for the cost of a roll of film and this price includes the cost of processing the film, they are using

Bundled pricing.

When Nintendo sets a relatively low price on its game units to stimulate more demand for its game cartridges, it is using

Captive product pricing.

Polo (Ralph Lauren) not only manufactures clothing but also operates its own retail stores (factory outlets). Polo is an example of a(n):

Corporate VMS.

Aristo Industries in South Dakota makes 1,000 pies per day. The total cost per raspberry-apple pie is $3.25. Its average fixed costs equal $.75 per pie. The company has calculated that if its charges $4.25 per pie, it will realize a 30 percent profit on the total cost of each pie. What pricing method is Aristo Industries using?

Cost-plus pricing.

Every time you buy a gallon of Golden Gallon milk, you can have your Golden Gallon milk card punched. When the card has 12 punches, your thirteenth gallon of milk is free. Golden Gallon is using a _____ discount.

Cumulative quantity.

The expected price for sunscreen is in the $4 to $6 price range. The introductory price for Shade UVA Guard by Schering-Plough was $9.99 to recover its research and development costs. Schering-Plough was using a _____ strategy.

Market-skimming

A channel consisting of only producers and final customers, with no middlemen providing assistance, is called

Direct

Cole Smithers sells fiberglass resins and fiberglass wire to the many small sailboat manufacturers in southern California. He takes title to the products but does not handle them. Instead, the resins are shipped in 50 gallon barrels directly from the producer to the sailboat manufacturers. Cole is a:

Drop shipper

The tendency for producers to employ multiple channels of distribution to reach the same target markets is called:

Dual distribution Sometimes the term 'dual distribution' is limited to situations in which producers employ multiple channels to reach the same target market. The term, in practice, is applied to situations in which firms use multiple channels to reach the same and different target markets.

Noncumulative quantity discounts are primarily offered by a seller in order to:

Encourage larger individual orders.

___________ occurs when a manufacturer prohibits its dealers from carrying products of its competitors.

Exclusive dealing

The Olympics Store is the only place in Chicago where a collector of Olympic memorabilia can buy a set of eight Olympic pins priced at $300,000. (They are made of diamonds, rubies, and other precious stones). What kind of distribution coverage strategy is being used?

Exclusive.

A manufacturer has set the initial price of its product below the product's AVC. The manufacturer assumes that the low price will be attractive to enough consumers so that market share can be acquired very rapidly. The producer further assumes that, as additional market share is attained, AVC will be reduced substantially. In fact, when total sales hit the 20,000 unit point, the producer expects AVC to drop below price. The manufacturer is most likely making use of:

Experience curve effects.

With which geographic pricing strategy is the seller likely to have the lowest freight charge?

FOB mill pricing.

Yesterday Phoenix Press in Arizona shipped 112 books to a retailer in Tennessee, 54 books to a retailer in Florida, and 9 books to a customer in Alaska, yet Phoenix Press paid no freight charges. Which geographic pricing strategy did Phoenix use?

FOB plant pricing.

True/False: Burroughs-Wellcome, when deciding whether or not to lower the price for AZT, considered several issues before deciding to hold the line on its current price. BW's decision illustrates a classic case of penetration pricing based on the assumption that demand for AZT was highly price elastic.

False

The VMS in which a large scale wholesaler brings together or sponsors a number of independent retailers is called a:

Voluntary chain

Larry and Alan are college students. Last summer, to earn money for their college tuition, they operated a snack booth at Panama City Beach, Florida for 3 months. They sold soft drinks, chips, crackers, and candy bars. A month before they were planning to open, Larry found a location that rented for $400 a month and a small refrigerator unit which they rented for $50 per month. Alan found distributors for the food products as well as for the paper products that they would need. Alan also purchased a business license for $100 and bought 3-month's worth of liability insurance for $150. The business license, rental fees, and insurance are all examples of:

Fixed Costs.

In order to offset the competitive disadvantage of FOB mill pricing, Tate Marble Company in Georgia could use _____ pricing to ship its products to building contractors and furniture restorers in any part of the United States.

Freight-absorption.

If there is a traditional channel for consumer goods, it is:

From producer to wholesaler to retailer to consumer

The strategy of market-skimming pricing is especially suited for new products because:

High initial prices can keep demand from exceeding supply.

Humphrey Studio sells reproductions of European antiques. Last year sales were disappointing. The studio owner decided to increase the price of each item by about 25%. The next year there was a 20% increase in units sold. The studio apparently experienced:

Inverse demand.

A vertical marketing system:

Is used to improve the channel operating efficiency and effectiveness.

Milt's Supply stocks electronic repair parts and related supplies and tools from various producers. Milt's sells primarily to small TV and electronic repair shops throughout the country that only want to order one or two items at a time. Orders are usually shipped out on UPS trucks. It appears that Milt's is a

Limited line (specialty) wholesaler.

Gobbler's Inc. is a small manufacturer of cookers for smoking turkeys. The company does not have its own sales force and has just introduced a cooker which will hold two birds. The cooker will most likely be distributed by a:

Manufacturers' agent

Debbie Wood sells food products to grocery wholesalers and large retail grocery chains in Tallahassee. She sells for several manufacturers with noncompeting lines of food products--earning a 5 percent sales commission. She neither handles nor owns the products she sells. Debbie is a:

Manufacturers' agent.

When Playstation video games were introduced into the United States, they were priced at an introductory price of $299. This price was $100 lower than the Sega games. Playstation used _____ a pricing strategy to quickly gain a large share of the market.

Market penetration.

Which of the following pricing strategies would you suggest to a retailer that wishes to encourage price-sensitive shoppers to postpone their purchases for those products the retailer intends to place on sale until the planned time of the sale:

Periodic discounting

A profit-oriented manufacturer of a consumer durable product faces a demand curve that is upward sloping to the right until extremely high prices are reached. For these latter prices, the demand curve tips over and is downward sloping. Which of the following pricing approaches is most consistent with the demand curve described?

Prestige pricing

A penetration pricing strategy is most likely to be used when pricing objectives focus on:

Preventing competitive entry by signaling competitors that profit potential is limited due to

Palouse Red is a small producer of red bell pepper sauce. It does not have its own sales force. Which channel of distribution is it most likely to use?

Producer to agent to retailer to consumer

Which distribution channel is the manufacturer of small safes for businesses most likely to use?

Producer to industrial distributor to user Given the very large number of companies needing small safes, direct distribution is not likely. The producer will use distribution via an industrial distributor or via agents to industrial distributors.

For featuring Erector Sets prominently in its store window, Child's Heaven, a store that carries educational toys, received a free motorized Ferris wheel kit, valued at $50. This is an example of a:

Promotional allowance

Almay's cosmetics paid one-half of the advertising cost for Gwen's Boutique to run a series of ads on the local radio station. Each of the radio ads emphasized that the boutique carried the complete line of Almay products. This would be an example of a:

Promotional allowance.

Alberton's supermarket prominently displays the prices of its brands side-by-side with prices you may pay at competing grocery stores for the same brand. Albertson's hopes to induce the perception that you are getting a 'deal' to stimulate added sales. Alberston's is using:(select all answers that apply)

Psychological pricing. Reference pricing.

Some manufacturers give ______________ to retailers to pass on to the retailers' salesclerks to encourage aggressive selling of specific items or lines.

Push money.

Manufacturers offer _____, deductions from a seller's list price, to encourage customers to buy in larger amounts or to make most of their purchases from that seller.

Quantity discounts.

Price elasticity of demand refers to the:

Responsiveness of quantity demanded to price changes

For which of the following products would a manufacturer be most likely to offer a seasonal discount?

Ski parkas

A reduction from list price given to middlemen to get shelf space for a product is a:

Slotting allowance.

For which of the following products is a manufacturer most likely to use intensive distribution?

Soft drinks

A full-service wholesaler in Dallas takes title to the products it stocks--a full line of home repair products for independent hardware stores. This wholesaler is a:

Specialty (limited line) wholesaler.

The main difference between retailer cooperatives and voluntary chains is:

Who organizes them

Which of the following is least likely to cause problems when employing historical data to estimate demands curves?

The seller introduced several new products that were considered to be category extensions during the time in question.

Bob lives in Alaska and is a frequent buyer of books on Internet auction sites. He is used to paying higher shipping costs than his brother who lives in Florida and who also likes to buy books on the Internet. The price differential is most likely because:

The seller was using zone-delivered pricing.

The primary factor that distinguishes between a merchant wholesaler and an agent is:

The wholesaler takes title; the agent does not.

For which of the following products would a retailer be LEAST likely to use odd pricing?

a designer evening dress

_____ are reductions from the list price offered to middlemen in payment for marketing functions they will perform.

Trade or functional discounts.

True/False: Assuming the law of demand holds true for a specific demand curve, high prices are not likely to be profitable for the seller because too few units will be sold to cover the firms total fixed costs.

True -- when prices are high, units demanded tend to be low when the demand curve is downward sloping. Per unit profit margins are very high because of the high price, but enough units generally cannot be sold to cover the firm's fixed costs i.e. to break even.

Many manufacturers require that their distributors purchase a 'full line' of products as part of their contractual arrangement. Such contracts are referred to as:

Tying contract

Which method for estimating demand curves is least appropriate for the marketer of a new product.

Using historical ratios

Wendy's fast-food restaurant chain priced several of its more popular menu items at $.99 while raising the price of some of its upgraded meal deals. This pricing strategy is an example of _____ pricing because the chain is trying to improve the customer's perception of the ratio of benefits received to the product's price.

Value.

_________ is the ratio of perceived benefits to price and any other incurred costs.

Value.

Larry and Alan are college students. Last summer, to earn money for their college tuition, they operated a snack booth at Panama City Beach, Florida for 3 months. They sold soft drinks, chips, crackers, and candy bars. A month before they were planning to open, Larry found a location that rented for $400 a month and a small refrigerator unit which they rented for $50 per month. Alan found distributors for the food products as well as for the paper products that they would need. Alan also purchased a business license for $100 and bought 3-month's worth of liability insurance for $150. 20. The cups, straws, napkins, and extra sales people needed to staff the stand are all examples of:

Variable costs.

Merchant wholesalers:

are independently owned firms that engage primarily in wholesaling and take title to products being distributed.

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.

When Ed Titus decided to sell 5 acres of land, he contacted Lenora Smalley. She showed the land to a young couple who wanted to build a home on a site, explained to them about the market for land in the area, and negotiated the sales terms. She left the final decision about the sale up to Titus and the young couple. Smalley is most likely a:

broker.

A retail firm that uses leader pricing is:

cutting the regular price on a few items with the hope of attracting customers.

A _____ consists of the set of people and firms involved in the transfer of title to a product as it moves from producer to ultimate consumer or business user.

distribution channel

Which of the following is the major disadvantage of nearly all cost-based pricing techniques?

fail to account for consumer demand at the prices set

Cherokee Cable Corporation, sells heavy wire cable to large construction companies around the country. Customers pay shipping from a central warehouse in Dallas. Recently, a new competitor in Atlanta has been taking away some of Cherokee Cable's Southern customers. If Cherokee Cable wants to compete in those distant markets, but not increase the cost of its product to other customers, it would probably switch to

freight absorption pricing

When a seller attempts to employ promotion to shift the demand curve for its product to the right, such efforts represent:

non-price competition

The Wine Cabinet, a store that features fine wines from all over the world, consistently prices The Complete Wine Course at $10.99. It sells this book at a price far below its regular retail price of $25.95 in order to attract wine shoppers to its store and increase its wine sales. This would be an example of:

leader pricing.

Ceramics Distributing Co. wants to keep its inventory low. Which of the following would be MOST likely to encourage customers to take over more responsibility for the storage function?

offering a noncumulative quantity discount

The typical markup (percent) is the:

selling price minus the cost of the item, divided by the selling price--times 100. The percentage markup (based on selling price) is (Price - Cost) / Price x 100

A grocery store chain has decided to sell a small assortment of fast moving auto repair items--but is not certain what stock to carry in which stores and does not want to leave the decision to the local store manager. The chain should probably get help from a

rack jobber.

Whether a given transaction is classified as a wholesale sale or as a retail sale depends essentially on:

the buyer's intended use of the product.

A retailer might expect a stocking allowance:

to offset the handling costs for a new product.

In price determination, given a particular selling price, the break-even point is where:

total costs of the product equals total sales revenue from the product.

When production stops (i.e. no units produced), ____________________becomes zero.

variable costs of production.