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Indicate whether the statement is true or false.
1. The Consumer Credit Protection Act requires that the finance charge for credit be stated as an annual percentage rate
and that creditors specify the procedures used for correcting billing mistakes.
a. True
b. False
2. For installment selling, the amount of credit should not exceed the repossession value of the goods sold.
a. True
b. False
3. Under certain conditions, pricing at less than total costs can make sense as a short-term strategy.
a. True
b. False
4. Because small businesses are small by definition, pricing and credit considerations are relatively unimportant to their
overall performance.
a. True
b. False
5. To ensure prompt payment, a business extending credit should have adequate billing records and collection procedures.
a. True
b. False
6. Under certain circumstances, local, state, and federal laws must be considered in setting prices in a small business.
a. True
b. False
7. Credit bureaus maintain credit histories on individuals based on information reported to them by banks, mortgage
companies, department stores, and other creditors.
a. True
b. False
8. Break-even analysis is an accurate tool for pricing because it points directly to the correct price for a given product.
a. True
b. False
9. As the result of a 2012 court case, retailers may now add a surcharge to customers’ bills for using a credit card.
a. True
b. False
10. The bad-debt ratio is the ratio of bad debts to total sales.
a. True
b. False
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11. Average pricing is an appropriate pricing approach for small businesses because the method takes into consideration
both fixed and variable costs.
a. True
b. False
12. Markups may be expressed as a percentage of either the firm’s cost or the industry-standard cost.
a. True
b. False
13. Break-even analysis begins by determining what sales level is needed to generate a profit.
a. True
b. False
14. In many lines of business, trade credit terms are so firmly set by tradition that a unique policy is difficult for a small
firm to implement.
a. True
b. False
15. In conducting a comprehensive break-even analysis, a firm must examine both its revenue-cost relationships and sales
forecasts.
a. True
b. False
16. Pricing based on what the market will bear works only for non-standardized products in markets where there is low
competition.
a. True
b. False
17. Markup rates should be high enough to cover a product’s cost, other expenses, any price reductions, and profit.
a. True
b. False
18. Trade-credit agencies collect credit information on business firms and consumers in a given area.
a. True
b. False
19. The primary purposes of the Equal Credit Opportunity Act are to inform consumers about terms of a credit agreement
and to require creditors to specify how finance charges are computed.
a. True
b. False
20. Cost analysis can identify a level below which a price should not be set under normal circumstances.
a. True
b. False
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21. If demand for a product is elastic, a change in price will have little effect on total revenues.
a. True
b. False
22. Prestige pricing (setting a high price to convey an image of high quality or uniqueness) is a pricing tactic that reflects
competitive advantage.
a. True
b. False
23. Sellers often decide to offer credit to borrowers because it helps with the exchange of purchased items.
a. True
b. False
24. The aging schedule is a categorization of accounts receivable based on the length of time they have been outstanding.
a. True
b. False
25. Variable pricing strategy occurs where a business sets and advertises a fixed price but gives a discount for reasons
such as the customer’s amount purchased.
a. True
b. False
26. Trade credit is extended to consumers purchasing large volumes of products.
a. True
b. False
27. Because it is a standard practice for many business types, selling on credit cannot often be avoided.
a. True
b. False
28. Home-based businesses will find it easy to obtain merchant status with credit card companies.
a. True
b. False
29. In today’s competitive environment, a cash-only seller will outsell a credit selling competitor.
a. True
b. False
30. A small business in competition with larger firms is seldom in a position to function as a price leader.
a. True
b. False
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31. If a small business has products that compete with one another, pricing decisions must take into account the effects of
a single product price on the rest of the line.
a. True
b. False
32. Credit cards are an alternative to cash.
a. True
b. False
33. Every applicant is credit worthy to some degree.
a. True
b. False
34. Collateral is generally required for open charge accounts.
a. True
b. False
35. An important source of credit information is the customer’s previous credit history.
a. True
b. False
36. Services are generally easier to price than products.
a. True
b. False
37. Price lining refers to the systematic determination of the right price for a product or service.
a. True
b. False
38. The best pricing practice is to undercut competitors’ prices.
a. True
b. False
39. American Express and Diner’s Club are examples of entertainment credit cards.
a. True
b. False
40. Setting a price for a product or sercvice is as much art as science.
a. True
b. False
41. An installment account is a typical trade credit agreement.
a. True
b. False
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42. A revolving charge account would be typical for larger purchases; smaller purchases are typical on installment
accounts.
a. True
b. False
43. A penetration price strategy is most practical when there is a low threat of short-term competition in the market or
when startup costs must be recovered rapidly.
a. True
b. False
44. One of the benefits of extending credit to borrowers is that doing so provides better records of purchases on credit
billing statements.
a. True
b. False
45. Marketing expenses, factory equipment costs, and salaries of office personnel are considered variable costs.
a. True
b. False
46. Bank credit cards are widely accepted by retailers who desire to offer credit but do not have their own credit cards.
a. True
b. False
47. With a skimming price strategy, prices are set lower than what will be the normal, long-range price to gain more
market share.
a. True
b. False
Indicate the answer choice that best completes the statement or answers the question.
48. A business will not be successful unless it charges a price for its products that covers its total
a. cost and a margin of profit.
b. cost of goods and selling cost.
c. fixed cost and overhead cost.
d. variable cost and cost of goods.
49. The Golf Global Company sells 1,000 shirts annually at a price of $35 each. If the company’s pricing policies adhere
to a 40% markup of selling price, the cost of each shirt is
a. $14.
b. $21.
c. $28.
d. $32.
50. The total sales revenue of a small business is a direct reflection of
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a. sales volume and credit terms.
b. price and credit terms.
c. price and expenses.
d. sales volume and price.
51. Quality Cars, an independent used-car dealership, utilizes long-term consumer credit in its business. Typically,
consumers are allowed to place a 15 percent down payment on an automobile. Then, over a period of 48 months, the
consumer is allowed to make payments on the balance of the account, which includes compound interest of 2 percent
monthly on the unpaid portion. Quality Cars is employing ____ in its business.
a. open charge accounts
b. installment accounts
c. revolving accounts
d. selective accounts
52. Which option is designed for long-term credit?
a. Credit cards
b. Installment accounts
c. Open charge accounts
d. Revolving charge accounts
53. Credit cards are usually based on a(n) ____ account system.
a. installment
b. open charge
c. revolving
d. a selective
54. Handyman Hardware, a small community-based store, offers its consumers the option of using credit. Creditworthy
individuals are able to use the “HH Credit Card” for all purchases up to a credit limit of $1,000. Consumers are required to
pay at least 20 percent of their outstanding balance at the end of each month. A 2 percent finance charge is assessed on the
unpaid balance at the end of each billing cycle. Handyman Hardware is employing ____ in its business.
a. open charge accounts
b. installment accounts
c. revolving charge accounts
d. selective accounts
55. Retro Hits, a local band covering songs from the 1980s and 1990s, decided they wanted to expand to more college
students. Research showed students thought the current $25 ticket price was too high for a local band. To strengthen
ticket demand, Retro Hits began offering $15 tickets to all fans who checked in on Facebook. The band was using a
a. variable pricing strategy.
b. price lining strategy.
c. skimming pricing strategy.
d. freemium pricing strategy.
56. Which type of organization is a good source of consumer credit information?
a. Trade-credit agencies
b. Third-party reports
c. The Federal Credit Reporting Agency
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d. Credit bureaus
57. Commissions paid to a salesperson would be included in
a. cost of goods sold.
b. human resources.
c. overhead costs.
d. administrative costs.
58. Beverly is systematically comparing various cost and revenue estimates in order to determine the acceptability of
alternative prices. Beverly is using:
a. break-even analysis
b. price lining
c. cost functioning
d. demand functioning
59. Which card is a retailer credit card?
a. Mastercard
b. VISA
c. Discover
d. JCPenney Card
60. Demand for a product typically ______ as price ______.
a. decreases, increases
b. decreases, stays the same
c. stays the same, increases
d. increases, decreases
61. Troy Bourbon, a local bourbon distillery, initially sold its product at a premium price of $45 because the company
believed consumers would view the bourbon as a prestige item. The company decided that when startup costs had been
fully recovered and competition became imminent, the company would reduce the price to $30 which was more expected
in the market. The distillery is using a
a. variable pricing strategy.
b. skimming price strategy.
c. price lining strategy.
d. penetration pricing strategy.
62. Tick Tock, a small retailer of a quality alarm clock, sells its product based on a 35% markup of cost. If the firm’s
product costs are approximately $133, what is the selling price?
a. $138.
b. $198.
c. $180.
d. $289.
63. If the owner of Clarrisa’s Fine Jewelry instructed the sales team to stress the uniqueness of the store’s hand designed
jewelry, a ____ pricing strategy would be expected.
a. skimming
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b. prestige
c. follow-the-leader
d. dynamic
64. Markup pricing may be expressed in terms of a percentage of either the ____ or the cost.
a. quantity
b. operating expenses
c. selling price
d. estimated expenses
65. Information Express is a privately owned and operated organization that collects credit information on business firms.
After the organization analyzes and evaluates the data, it makes credit ratings available to client companies for a fee.
Information Express is a
a. trade-credit agency.
b. financial credit agency.
c. credit collection agency.
d. credit bureau.
66. The seller’s measure of what he or she is willing to receive in exchange for transferring ownership or use of a product
or service is
a. credit.
b. average pricing.
c. demand.
d. price.
67. Zemann’s, a large firm selling custodial supplies to other businesses, has decided to begin offering trade credit. Its
major objective in granting credit is
a. to generate consumer goodwill.
b. to make sales.
c. to promote the business
d. to reduce bad debt risk.
68. Diamonds and other jewels often carry a high price to convey an image of high quality or uniqueness. This type of
pricing is known as
a. skimming pricing.
b. penetration pricing.
c. variable pricing.
d. prestige pricing.
69. Slow-paying credit accounts
a. almost always help to build goodwill with customers.
b. are rarely a problem for small businesses.
c. tie up the seller’s working capital.
d. yield advantages from carry-over effects.
70. Buying on credit ____ the amount of working capital needed by the business doing the buying.
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a. augments
b. decreases
c. increases
d. offsets
71. Active Feet, a small manufacturer of shoes, hired an additional vice-president and purchased a barrel of synthetic
rubber used to make shoe soles. These two expenses should be considered a(n) ____ and a(n) ____, respectively.
a. selling cost/cost of goods sold
b. overhead cost/cost of goods sold
c. selling cost/overhead cost
d. overhead cost/selling cost
72. Which “C” defines the customer’s asset conservation?
a. Capacity
b. Character
c. Collateral
d. Conditions
73. Within the framework of a break-even analysis, an examination of ____ is conducted to determine the quantity at
which the product, with an assumed price, will generate enough revenue to start earning a profit.
a. costs
b. revenues
c. sales forecasts
d. costs and revenue
74. Stone Creek Farm sells a special type of hay to horse owners. If the farm allows its customers to have hay delivered
and then be billed at a later date, it would be using which type of account?.
a. an open charge account
b. an installment account
c. a revolving account
d. a selective account
75. Tanya would like to gain market share rapidly so she has priced her product at a lower than normal, logn-range market
price. Which strategy is Tanya using?
a. variable pricing
b. skimming price
c. price lining
d. penetration pricing
76. Lorrie Veasey, owner of All That Swag, used discount coupons for special event items to drive customers to her retail
stores. Using such promotions and stating that “the regular price is never chiseled in stone” would indicate Lorrie is using
a
a. variable pricing strategy.
b. price lining strategy.
c. skimming pricing strategy.
d. product line pricing strategy.
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77. For a price lining strategy, a company’s inventory levels for each line will depend directly on the ____ of the
customers.
a. buying desires and income level
b. personal demographics
c. credit worthiness
d. product awareness
78. Dennis has made a purchase of $50,000 using trade credit with terms of 2/10 net 30. How much discount will a he
receive if the buyer pays the bill on the net due date?
a. $0
b. $500
c. $1200
d. $3,000
79. Hillary wants to purchase a refrigerator on credit. If she uses an installment plan, what is most likely to occur?
a. A down payment will be required.
b. A discounted price on her purchase will not be offered.
c. By law, finance charges on her account cannot exceed 20 percent of the purchase price.
d. Taxes will not be charged.
80. Fine Framings, a small framing shop, uses markup pricing to arrive at a final selling price. The firm sells its frames at
a price of $25, given a $15 unit cost. Fine Framings’ markup on the selling price is ____, and its markup on cost is ____.
a. 66-2/3%, 40%
b. 40%, 66-2/3%
c. 167%, 67%
d. 250%, 100%
81. The difference between the unit selling price and the unit variable costs and expenses is known as the
a. average price.
b. elasticity.
c. contribution margin.
d. break-even point.
82. A comprehensive break-even analysis entails
a. examining revenue-cost relationships and establishing sales forecasts.
b. analyzing marketing strategy’s effect on revenue and costs.
c. the use of comparison pricing and contribution margins.
d. approximating debits, credits, costs and sales.
83. When she uses her American Express card, Cathy obtains possession of goods or services when they are purchased.
Payment is due when billed at a later date. American Express is a type of:
a. installment account
b. open charge account
c. revolving account
d. selective account
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84. A business that has a gaming console intended to compete directly with Sony’s Playstation gaming console would
likely use a ____ pricing strategy.
a. follow-the-leader
b. penetration
c. prestige
d. variable
85. In general, products that are consumed in fixed amounts have
a. constant demand.
b. elastic demand.
c. inelastic demand.
d. variable demand.
86. WalMart grants credit to consumers who purchase for personal or family use. This type of credit is called:
a. trade credit.
b. personal credit.
c. open credit.
d. consumer credit.
87. A trade credit bill of $80,000 with terms of sale of 2/10, net 30 means the buyer saves ____ if the bill is paid within
the discount period.
a. $0
b. $1,600
c. $2,500
d. $4,000
88. Chocolate Concoctions, a maker of high end chocolate candies, decided to price its boxes of candies below the long-
term market price. The decision was made to increase market share and discourage other firms from entering the
chocolate market. Chocolate Concoctions was implementing a
a. penetration pricing strategy.
b. price lining strategy.
c. skimming price strategy.
d. variable pricing strategy.
89. Hollywood Amusement, a small independent movie theater, decreased the price of admission from $10 to $9. Prior to
the price decrease, the business sold 1,000 tickets each month. After the price decrease, it experienced ticket sales of
1,500 a month. If the change in sales is attributable only to the change in price, Hollywood Amusement faces ____ for its
movie tickets.
a. elastic demand
b. constant demand
c. inelastic demand
d. variable demand
90. A primary purpose of the federal Consumer Credit Protection Act is to
a. require creditors to specify how finance charges are computed.
b. grant certain rights to credit applicants regarding credit reports.
c. inform consumers about all forms of credit available to them.