d.
adaptive pricing strategy.
25. 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
26. 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.
27. 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
28. Credit cards are usually based on a(n) ____ account system.
a.
installment
b.
open charge
c.
revolving
d.
a selective
29. Which “C” defines the customer’s asset conservation?
a.
Capacity
b.
Character
c.
Collateral
d.
Conditions
30. 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.
31. Buying on credit ____ the amount of working capital needed by the business doing the buying.
a.
augments
b.
decreases
c.
increases
d.
offsets
32. 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
33. 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.
34. Which option is designed for long-term credit?
a.
Credit cards
b.
Installment accounts
c.
Open charge accounts
d.
Revolving charge accounts
35. 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
36. Which card is a retailer credit card?
a.
Mastercard
b.
VISA
c.
Diner’s Club
d.
Sears Card
37. 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
38. 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
39. 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
40. 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.
41. 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
d.
Credit bureaus
42. 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.
43. 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.
d.
specify what information a customer’s employer can release about him/her.
MATCHING
Match the term with its definition. Some terms may not be used.
a.
Adaptive pricing
g.
Price lining strategy
b.
Average pricing
h.
Price
c.
Follow-the-leader pricing
i.
Skimming price strategy
d.
Markup pricing
j.
Value
e.
Penetration pricing strategy
k.
Variable pricing strategy
f.
Prestige pricing
1. An approach based on applying a percentage to a product’s cost to obtain its selling price
2. A technique that places different values on a product or service for customers with different needs
3. A technique that sets very high prices for a limited period before reducing them to more competitive
levels
4. An approach based on setting a high price to convey an image of high quality or uniqueness
5. An approach in which the total cost for a given period is divided by the quantity sold in that period to
set a price
6. A specification of what a seller requires in exchange for transferring ownership or use of a product or
service
7. A technique that sets more than one price for a product or service in order to offer price concessions to
certain customers
8. A technique that sets a range of several distinct merchandise price levels
9. A technique that uses a particular competitor as a model in setting prices
10. A technique that sets lower than normal prices to hasten market acceptance of a product or service or
to increase market share
Match the term with its definition. Some terms may not be used.
a.
Consumer credit
g.
Open charge account
b.
Credit bureaus
h.
Revolving charge account
c.
Credit card
i.
Trade credit
d.
Credit
j.
Trade credit agencies
e.
Debit card
k.
Value
f.
Installment account
11. Financing granted by retailers to individuals who purchase for personal or family use
12. A line of credit that allows the customer to obtain a product or service at the time of purchase, with the
payment due when billed
13. An agreement between a buyer and a seller that allows for delayed payment for a product or service
14. Privately owned organizations that collect credit information on businesses
15. A line of credit on which the customer may charge purchase at any time, up to a pre-established limit
16. Privately owned organizations that summarize a number of firms’ credit experiences with particular
individuals
17. A line of credit that requires a down payment, with the balance paid over a specified period of time
18. Financing provided by suppliers to client companies
19. An alternative to cash whose use results in an immediate withdrawal from the buyer’s bank account to
pay for products or services
20. An alternative to cash whose use provides assurance to a seller that a buyer has a satisfactory credit
rating and that payment will be received from the issuing financial institution
Match the term with its definition. Some terms may not be used.
a.
Aging schedule
f.
Contribution margin
b.
Average pricing
g.
Elastic demand
c.
Bad-debt ratio
h.
Elasticity of demand
d.
Break-even analysis
i.
Inelastic demand
e.
Break-even point
j.
Value
21. The difference between the unit selling price and the unit variable costs and expenses
22. The extent to which a good or service is perceived by a customer as meeting his or her needs or wants,
measured by the customer’s willingness to pay for it
23. The ratio of bad debts to credit sales
24. Demand that changes significantly when there is a change in the price of a product or service
25. Sales volume at which total sales revenue equals total costs and expenses
26. The degree to which a change in price affects the quantity demanded
27. A categorization of accounts receivable based on the length of time they have been outstanding
28. Demand that does not change significantly where there is a change in the price of a product or service
29. The examination of cost-revenue relationships and the incorporation of sales forecasts into the analysis
ESSAY
1. Use product examples to illustrate elastic and inelastic demand.
2. How are the two components of total cost related to variable and fixed costs? Use a clothing retailer
to illustrate the costs.
3. Explain the relationship between the break-even point and the contribution margin. How does
demand affect this relationship?
4. What would be the break-even point in units for a firm selling fishing poles at a selling price of $100,
variable cost per pole is $65, and fixed costs are $100,000?
5. Contrast penetration price and skimming price strategies.
6. After defining three pricing strategies, state when a small business would best use the strategy.
7. Layla is a well-known successful movie star who recently retired and just started designing handbags.
She has opened a boutique business in her home town which has no national department stores. She
hopes to attract other celebrities, tourists and local residents to shop at her store. She is considering
pricing strategies for her products. Which strategy would best fit her image and product?
8. List and describe the three types of credit.
9. What are the five factors that entrepreneurs need to consider with deciding to extend credit.
10. Discuss accounts receivable management methods in a small business.
11. Guy owns a lumber yard working directly with home builders and contractors. Margie, a contractor
new to the area, wants to set up a credit account with the lumber yard. She has a good history of
successful and profitable projects. What questions should Guy ask in evaluating the Margie’s credit
status? Relate to the 5 C’s of credit.
