86) A skimming pricing strategy permits a small business owner to correct pricing mistakes more
quickly and easily than a penetration pricing strategy.
Topic: Pricing Strategies and Tactics, Skimming
AACSB: Analytic Skills
87) A penetration pricing strategy allows the business to build market share quickly.
Topic: Pricing Strategies and Tactics
AACSB: Analytic Skills
88) A skimming price strategy is best for quickly building market share.
Topic: Pricing Strategies and Tactics
AACSB: Analytic Skills
89) Odd pricing is a form of psychological pricing.
Topic: Pricing Techniques for Established Products and Services
AACSB: Analytic Skills
90) Price lining occurs when a small company raises the price of all of its goods by the same
percentage to cover operating expenses.
Topic: Pricing Techniques for Established Products and Services
AACSB: Analytic Skills
91) Price lining, leader pricing, and odd pricing are three geographic pricing strategies that can
be used for established products.
Topic: Pricing Techniques for Established Products and Services
AACSB: Analytic Skills
92) Under uniform delivered pricing, a company charges all of its customers the same price, even
though the cost of selling or transporting the merchandise varies.
Topic: Pricing Techniques for Established Products and Services
AACSB: Analytic Skills
21
93) Under FOB Factory terms, the customer pays all shipping costs.
Topic: Pricing Techniques for Established Products and Services, Geographic Pricing
AACSB: Analytic Skills
94) Multiple unit pricing is a technique used to simplify the pricing decision by setting the same
price for items in the same line.
Topic: Pricing Techniques for Established Products and Services, Multiple Unit Pricing
AACSB: Analytic Skills
95) Most small business managers follow the manufacturer’s suggested retail price when it is
available.
Topic: Pricing Techniques for Established Products and Services, Suggested Retail Pricing
AACSB: Analytic Skills
96) The manufacturer’s suggested price takes into account the small firm’s cost structure and its
competitive situation.
Topic: Pricing Techniques for Established Products and Services, Suggested Retail Pricing
AACSB: Analytic Skills
97) Even if a small business cannot differentiate its product by creating a distinctive image in the
consumer’s mind, it can afford its own line of prices.
Topic: Competition and Prices
AACSB: Analytic Skills
98) The prices a small business charges influence its image in the marketplace.
Topic: Pricing: The Creative Blend of Art and Science
AACSB: Analytic Skills
99) Two factors that determine the effects of competitors’ prices on a small business owner’s
pricing decisions are the location of the competitors and the nature of the competing goods.
Topic: Competition and Prices
AACSB: Analytic Skills
22
100) Although competitor’s prices can have a dramatic effect on a small business’s own prices,
monitoring competitor prices is illegal in many states.
Topic: Competition and Prices
AACSB: Analytic Skills
101) If a firm lacks a unique business image, it must match its competitor’s prices or risk losing
customers.
Topic: Competition and Prices
AACSB: Analytic Skills
102) Non-price competition is using personal service, free delivery, and other extras to attract
and keep customers without changing prices.
Topic: Competition and Prices
AACSB: Analytic Skills
103) The underlying forces that dictate price are generally the same across industries, so that all
businesses in that industry have the same underlying cost factors.
Topic: Adjustable or Dynamic Pricing
AACSB: Analytic Skills
104) A firm’s initial markup is the average markup required on all merchandise to cover the cost
of items, incidental expenses, and a profit.
Topic: Pricing Techniques for Retailers
AACSB: Analytic Skills
105) The costs of merchandise used in computing markup include wholesale price, incidental
costs, and profit minus any discounts.
Topic: Pricing Techniques for Retailers
AACSB: Analytic Skills
23
106) A retailer who buys a product for $19.75 and has a desired markup of retail price of 55%
should establish a retail price of $43.89.
Topic: Pricing Techniques for Retailers
AACSB: Analytic Skills
107) The initial markup on a product is the total markup on all merchandise to cover the cost of
the items and a reasonable profit.
Topic: Pricing Techniques for Retailers
AACSB: Analytic Skills
108) Most stores use a standard markup across all products due to the heavy labor costs involved
in individual pricing.
Topic: Pricing Techniques for Retailers
AACSB: Analytic Skills
109) The most effective pricing strategy for small businesses is follow-the-leader pricing due to
its simplicity and its ability to keep price parity for the small business.
Topic: Leader Pricing
AACSB: Analytic Skills
110) The main advantage of cost-plus pricing is its simplicity.
Topic: Pricing Techniques for Manufacturers
AACSB: Analytic Skills
111) Even though cost-plus pricing is simple, it does not encourage a small business to use its
resources efficiently.
Topic: Pricing Techniques for Manufacturers
AACSB: Analytic Skills
112) The traditional method of product costing, absorption costing, is extremely useful in helping
the manufacturer determine prices or the effect of price changes.
Topic: Pricing Techniques for Manufacturers
AACSB: Analytic Skills
24
113) The problem with using full absorption cost information when setting prices is that it clouds
the true relationships among price, volume, and costs by including fixed expenses in unit cost.
Topic: Direct Costing and Pricing
AACSB: Analytic Skills
114) Contribution margin is the portion of sales revenue left after covering fixed expenses and a
profit.
Topic: Direct Costing and Pricing
AACSB: Analytic Skills
115) The break-even selling price is calculated by dividing the profit desired plus the variable
cost per unit times the quantity produced plus the total fixed cost by the quantity produced.
Topic: Computing a Break-Even Selling Price
AACSB: Analytic Skills
116) The formula for calculating the break-even is:
Break-even selling price =
Topic: Computing a Break-Even Selling Price
AACSB: Analytic Skills
117) Because service firms have no quantitative pricing techniques available to them, they must
charge the “going rate” for their services.
Topic: Pricing Techniques for Service Firms
AACSB: Analytic Skills
118) For a service firm, labor and materials comprise the largest portion of the cost of the service
provided.
Topic: Pricing Techniques for Service Firms
AACSB: Analytic Skills
25
119) The use of credit cards increases the probability, speed, and magnitude of customer
spending.
Topic: The Impact of Credit on Pricing
AACSB: Analytic Skills
120) The use of a credit card by small business customers costs the small business from 10 to 15
percent of the price of the product.
Topic: The Impact of Credit on Pricing
AACSB: Analytic Skills
121) One advantage of installment loans for a small business is that the business owner retains a
security interest in the item sold as collateral on the loan.
Topic: The Impact of Credit on Pricing
AACSB: Analytic Skills
122) Because installment credit is so profitable for the small business, most small businesses
finance themselves.
Topic: The Impact of Credit on Pricing
AACSB: Analytic Skills
123) Trade accounts are the equivalent of a credit card that is issued by the business.
Topic: The Impact of Credit on Pricing
AACSB: Analytic Skills
124) Qualifying for merchant status is relatively easy for most small businesses.
Topic: The Impact of Credit on Pricing
AACSB: Analytic Skills
125) Merchant status permits a small business to accept credit card payments and enhances the
reputation of the small business.
Topic: The Impact of Credit on Pricing
AACSB: Analytic Skills
26