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60) Herbie Inc., a firm manufacturing sandwich makers, has fixed costs of $250,000, variable
costs of $20 per unit of output, and expected unit sales of 50,000 units. What is the unit cost of
a sandwich maker manufactured by Herbie?
A) $15
B) $25
C) $30
D) $50
E) $75
61) Samsung Mobile plans to launch a new phone with a unit cost of $270 and wants to earn a
10 percent markup on its sales. Samsung's markup price is ________.
A) $275
B) $280
C) $295
D) $300
E) $335
62) Why is markup pricing most likely impractical?
A) Calculating costs is complicated due to fluctuations.
B) By tying the price to cost, sellers oversimplify pricing.
C) When all firms in the industry use this pricing method, prices tend to be similar.
D) The method ignores demand and competitor prices.
E) With a standard markup, consumers know when they are being overcharged.
63) Why is markup pricing most likely popular?
A) Sellers are more certain about demand than about costs.
B) Markup pricing tends to maximize market competition.
C) Markup pricing affords buyers greater bargaining power.
D) Sellers do not need to make frequent adjustments as demand changes.
E) Markup pricing is designed to set prices to break even on the costs of making and marketing
a product.
64) Which of the following is a cost-based approach to pricing?
A) value-based pricing
B) high-low pricing
C) target return pricing
D) good value pricing
E) EDLP
65) Target return pricing is a variation of which of the following cost-oriented pricing
approaches?
A) cost-plus pricing
B) break-even pricing
C) markup pricing
D) value-based pricing
E) fixed cost pricing
66) Target return pricing uses the concept of a(n) ________, which shows the total cost and
total revenue expected at different sales volume levels.
A) BCG matrix
B) break-even chart
C) SWOT analysis
D) demand curve
E) experience curve
67) John assured his venture capitalists an earning of 25-percent return on equity when he
began his IT startup. In order to achieve this result, he will most likely use which of the
following pricing approaches?
A) value-based pricing
B) markup pricing
C) EDLP
D) customer-based pricing
E) target return pricing
68) The break-even volume is the point at which ________.
A) the total revenue and total cost curves intersect
B) demand equals supply
C) the production of one more unit will not lead to increase in demand
D) the company can pay off all its long-term debt
E) a firm exceeds the sales forecast
69) Which of the following statements about break-even analysis is true?
A) It is used to determine how much production experience a company must have in order to
achieve desired efficiencies.
B) It is a technique used to calculate fixed costs.
C) It determines the amount of retained earnings a company will have during a given
accounting period.
D) It is a technique marketers use to determine the relationship between supply and demand.
E) It is calculated by using variable costs, the unit price, and fixed costs.
70) A company faces fixed costs of $100,000 and variable costs of $8 per unit. It plans to
directly sell its product in the market for $12. How many units must it produce and sell to break
even?
A) 20,000
B) 25,000
C) 30,000
D) 35,000
E) 40,000
71) As a manufacturer increases the price, ________.
A) efficiency drops
B) the break-even volume drops
C) competition is minimized
D) the total costs increase
E) the profit margin shrinks
72) Mansfield Pharmaceuticals markets Zipro, an antibiotic. The firm has fixed costs of
$1,000,000 and variable costs of $2 per bottle of 50 tablets priced at $10 per bottle. What is the
break-even volume?
A) 25,000
B) 55,000
C) 100,000
D) 115,000
E) 125,000
73) A manufacturer has fixed costs of $100,000, a variable cost of $10 per unit of output, and
break-even volume of 50,000 units. What should the manufacturer's unit cost be in order to
break even?
A) $10
B) $12
C) $14
D) $16
E) $20
74) When performing a break-even analysis, the manufacturer should consider all of the
following EXCEPT ________.
A) probable demand
B) likely profits
C) competitors' pricing
D) estimated break-even volumes
E) different prices
75) Which of the following involves setting prices based on a rival firm's strategies, costs,
prices, and market offerings?
A) target return pricing
B) good-value pricing
C) competitor value-added pricing
D) market-based pricing
E) competition-based pricing
76) Companies can legitimately charge a higher price if ________.
A) consumers perceive that the company's product offers greater value
B) the demand for products manufactured by a firm is highly elastic
C) the cost of advertising is minimal
D) derived demand remains constant
E) consumers de-emphasize quality
Refer to the scenario below to answer the following question(s).
Alden Manufacturing produces small kitchen appliances—blenders, hand mixers, and electric
skillets—under the brand name First Generation. Alden attempts to target newlyweds and first-
time home buyers with this brand.
Considering that most young households have limited financial resources, Alden attempts to
engage in target costing. "In doing this," says Milt Alden, the co-founder of Alden Electronics,
"we have better control over keeping price right in line with customers."
Alden manufactures a three-speed blender, its top seller, along with a five-speed blender. The
hand mixers are manufactured in two variants—a small handheld mixer with two rotating
beaters and another that comes with an optional stand and an attached mixing bowl. Alden's
temperature-controlled skillets are manufactured in a single style with three color options.
"Our product offerings are narrower," Milt Alden added, "but our line workers know each
product like the back of their hands. This allows us to produce superior products while holding
our prices low.
77) Milt Alden says that his line workers "know each product like the back of their hands," and
that this knowledge helps the company keep its prices low. This indicates that Alden
Manufacturing most likely benefits from the ________.
A) cost-plus pricing
B) value-added pricing
C) experience curve
D) inelastic demand in the market
E) derived demand in the market
78) Which of these is NOT a way in which pricing can accomplish company objectives?
A) set prices to attract new customers and retain existing customers
B) raise prices to create excitement for a brand
C) set prices low to hinder competition from entering the market
D) price one product to help sales of other products in the company's line
E) set price to keep the loyalty of resellers
79) Customer perceptions of the product's value set the floor for prices.
80) Product costs set the ceiling for prices.
81) In customer value-based pricing, price is considered along with all other marketing mix
variables before the marketing program is set.
82) Value-based pricing uses the sellers' perception of value as the key to pricing.
83) Using value-based pricing, a marketer would not design a product and marketing program
before setting the price.
84) Good-value pricing usually is used by premium brands, and rarely by less-expensive
brands.
85) Cost-based pricing is often product driven.
86) Department stores that practice everyday low pricing typically provide frequent sale days,
early-bird savings, and bonus earnings for store credit-card holders.
87) Overhead costs are costs that do not vary with production or sales level.
88) Variable costs change directly with the level of production.
89) Cost-based pricing involves setting prices based on consumer perception of value.
90) A company will be at an advantage even if it costs more than its competitors to make and
sell a similar product.
91) Average cost tends to increase with accumulated production experience.
92) A downward-sloping experience curve is indicative of a company's rapidly increasing
production costs.
93) The simplest pricing method is cost-plus pricing, which involves adding a standard markup
to the cost of the product.
94) Markup pricing is popular because when all firms in the industry use this pricing method,
prices tend to be similar, so price competition is minimized.
95) Markup pricing is used when a firm tries to determine the price at which it will break even
or make the target return it is seeking.
96) A break-even chart shows the total cost and total revenue expected at various sales volume
levels.
97) Break-even volume is the number of unit sales required for total revenue to cover total cost.
98) Explain the concept of the price floor.
99) Explain the concept of the price ceiling.
100) Briefly describe the process of value-based pricing.
101) What is good-value pricing?
102) What is high-low pricing?
103) Define total costs.
104) Explain the significance of a downward-sloping experience curve.
105) A marketer's fixed costs are $400,000. The variable cost is $16 per unit, and the price of
the product is $24 per unit. If the company wants to make a profit, how many units must it sell
and at what price?
106) A marketer's fixed costs are $400,000, the variable cost is $16 per unit, and the price of
the product is $24 per unit. What is the company's break-even point in dollar sales?
107) What is competition-based pricing?
108) Distinguish between value-based pricing and cost-based pricing.
109) Explain break-even pricing.
110) Which of the following is an external factor that affects pricing decisions in a company?
A) the company's overall marketing strategy
B) the nature of the market
C) the organizational objectives of the company
D) elements of the company's marketing mix
E) the annual advertising budget of rival firms
111) Which of the following is an internal factor that affects pricing decisions in a company?
A) the nature of the market
B) the degree of inflation in the economy
C) the overall marketing strategy of the company
D) the forces of demand and supply in the market
E) consumers' perception of value
112) Companies using target costing ________.
A) first design a new product and then determine its cost
B) tailor their products to be in line with the marketing mix
C) routinely neglect customer value considerations
D) avoid determining an ideal selling price until analyzing test market results
E) start with an ideal selling price and then target costs that will ensure that the price is met
113) Developing an effective integrated marketing mix program involves coordinating price
decisions with product design, promotion, and ________ decisions.
A) distribution
B) production
C) assembly
D) warranty
E) competition
114) Elmo Inc., a global conglomerate, designed the ElBrush, an electric toothbrush. Sensing
market demand for the electric toothbrush, Elmo started with an ideal selling price of $13 based
on customer value considerations and then targeted costs to ensure that the price was met. This
exemplifies ________.
A) competition-based pricing
B) cost-plus pricing
C) target costing
D) everyday low pricing
E) high-low pricing
