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Indicate whether the statement is true or false.
1. A shortcoming of the breakeven model is that it assumes that per-unit variable costs change at different levels
of operation.
a. True
b. False
2. Prestige pricing establishes a relatively high price to develop and maintain an image of quality and
exclusiveness that appeals to status-conscious consumers.
a. True
b. False
3. Businesses that use cost-based pricing always apply the same markup percentage across all products.
a. True
b. False
4. Many firms attempt to promote stable prices by meeting competitors’ prices to maintain pricing parity.
a. True
b. False
5. The basic breakeven model addresses the question of whether customers will actually purchase the product at
the specified price in the quantity required to break even or make a profit.
a. True
b. False
6. The price of products only includes the costs incurred by the manufacturer for procuring the raw material and
for processing the products.
a. True
b. False
7. A value pricing strategy emphasizes the benefits a product provides in comparion to the price and quality
levels of competing offerings.
a. True
b. False
8. Breakeven analysis is an effective tool for marketers in assessing the sales required for covering costs and
achieving specified profit levels.
a. True
b. False
9. Businesses that use cost-based pricing often have different markup percentage for different types of products.
a. True
b. False
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10. Value pricing is a common approach for fast food restaurants.
a. True
b. False
11. A price is the amount of funds required to purchase a good or service.
a. True
b. False
12. Breakeven calculations insure that variable costs are covered, but do not consider fixed costs.
a. True
b. False
13. You know a cost is a fixed cost if that expense remains the same regardless of sales volume (such as the number of
customers served or the units produced).
a. True
b. False
14. Often there are cost efficiencies with longer production runs that will result in lower variable cost per unit.
a. True
b. False
15. A company might sell a product below the production costs for short-term promotional purposes.
a. True
b. False
16. Jamara has started a home party business that hosts parties and those attending paint signs. Jamara must pay $500
a year to be a representative for Paint A Sign. In addition, Jamara buys all the materials for the parties, including the
metal base, the paints, brushes, stencils, and transfers. Currently, these items all add up to $10 on average. Jamara
charges each participant $25 for each sign they make. For Jamara’s Paint A Sign business, the $10 cost of materials is a
variable cost. This cost per unit will never change.
a. True
b. False
17. Prestige pricing is a common approach for fast food restaurants.
a. True
b. False
18. Breakeven analysis is an effective tool to determine the level of sales required to cover costs.
a. True
b. False
19. While variable costs change with level of production, they always stay the same per unit regardless of the level of
production. For example, if the variables cost of making an item are $10 when producing 100 units, they will stay $10
each when 500 or 1000 units are produced.
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a. True
b. False
20. Overall organizational objectives and more specific marketing objectives guide the development of pricing
objectives, which in turn lead to the development and implementation of more specific pricing policies and
procedures.
a. True
b. False
21. The breakeven model assumes per-unit variable costs do not change at different levels of operation. In reality, per-
unit variable costs often increase as production quantities increase.
a. True
b. False
22. Temporary price cuts are the only tactic available for increasing a product’s market share.
a. True
b. False
23. Breakeven calculations insure that both fixed and variable costs and are covered.
a. True
b. False
24. Prestige objectives reflect marketers’ recognition of the role of price in creating an overall image of the firm
and its product offerings.
a. True
b. False
25. When firms have identical or very similar products and price information readily available – for example, cigarettes or
soft drinks – a common pricing approach to avoid price wars is utilizing a competitive parity pricing strategy.
a. True
b. False
26. The breakeven model assumes per-unit variable costs do not change at different levels of operation. In reality, per-
unit variable costs often go down as production quantities increase.
a. True
b. False
27. A company will never sell a product below the production costs.
a. True
b. False
28. Breakeven calculations insure that fixed costs are covered, but do not consider variable costs.
a. True
b. False
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Indicate the answer choice that best completes the statement or answers the question.
29. Parker Industries is a small company with a big name! Parker Industries is actually a one-person company that
imports strands of LED lights from China and sells them through its website. Parker’s only overhead is a storage unit for
inventory that costs $125 a month and a $25 monthly fee for website hosting. Currently, Parker imports the lights for
$.99 each (including inbound shipping) and sells them for $4.49. Parker also pays shipping expenses of $.50 per light
strand. If Parker’s shipping charges increased to $.75 a strand, what would happen?
a. Breakeven volume would increase
b. Variable cost would decrease
c. Profit would increase
d. Breakeven volume would decrease
30. Parker Industries is a small company with a big name! Parker Industries is actually a one-person company
that imports strands of LED lights from China and sells them through its website. Parker’s only overhead is a
storage unit for inventory that costs $125 a month and a $25 monthly fee for website hosting. Currently, Parker
imports the lights for $.99 each (including inbound shipping) and sells them for $4.49. Parker also pays
shipping expenses of $.50 per light strand. What is Parker’s monthly breakeven volume?
a. 50
b. 33.4
c. 27.8
d. 125
31. MycroFiber is a producer of microfiber material for the auto detailing industry. Jamal, the owner of MycroFiber is
highly skilled in the technical and manufacturing areas, but does not understand pricing. Jamal knows he wants to cover
the cost of production when selling his material and needs revenue to cover his overhead costs and to make a profit. To
be sure he meets these goals, Jamal decides to take a cost-based pricing approach. If MycroFiber’s cost of production is
$4 a square yard, Jamal and Jamal prices his material at $10 a square yard, what is MycroFiber’s markup percentage?
a. 150%.
b. 200%.
c. 100%.
d. 250%.
32. Jamara has started a home party business that hosts parties and those attending paint signs. Jamara must pay $500
a year to be a representative for Paint A Sign. In addition, Jamara buys all the materials for the parties, including the
metal base, the paints, brushes, stencils, and transfers. These items all add up to $10 on average. Jamara charges each
participant $25 for each sign they make. For Jamara’s Paint A Sign business, the gross margin or contribution margin for
Jamara’s business is:
a. $15.
b. $20.
c. $10.
d. $25.
33. MycroFiber is a producer of microfiber material for the auto detailing industry. Jamal, the owner of MycroFiber is
highly skilled in the technical and manufacturing areas, but does not understand pricing. Jamal knows he wants to cover
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the cost of production when selling his material and needs revenue to cover his overhead costs and to make a profit. To
be sure he meets these goals, Jamal decides to calculate the cost of production and add a percentage to that. Jamal is
using:
a. cost-based pricing.
b. value pricing.
c. total view pricing.
d. overhead pricing.
34. Nakamichi introduced a set of true high-fidelity headphones at a price of $2,000. However, the product simply did
not find a market. Most likely, this was due to:
a. The price exceeded the consumer price ceiling.
b. The price was below the consumer price floor.
c. Fixed costs were too high.
d. Competitors’ prices were too high.
35. Selling price of the product minus the variable cost of the product yields:
a. contribution margin.
b. profit.
c. fixed cost.
d. loss.
36. Parker Industries is a small company with a big name! Parker Industries is actually a one-person company
that imports strands of LED lights from China and sells them through its website. Parker’s only overhead is a
storage unit for inventory that costs $125 a month and a $25 monthly fee for website hosting. Currently, Parker
imports the lights for $.99 each (including inbound shipping) and sells them for $4.49. Parker also pays
shipping expenses of $.50 per light strand. If Parker is currently selling 50 units a month, what is Parker’s
monthly profit or loss?
a. $0
b. $224.50 (profit)
c. $49.50 (profit)
d. −$74.50 (loss)
37. Mignon d’Armitage manufactures jewelry. This firm is planning to introduce a new necklace and is trying to
determine how many units it must sell in order to break even. Fixed costs are $100,000 and variable costs for
each unit will be $20. At the price of $45 each, the number of units that must be sold in order to break even is:
a. 2,500.
b. 4,000.
c. 5,000.
d. 7,500.
38. A firm that uses the product cost plus a target markup percentage to calculate the sales price is using:
a. cost-based pricing.
b. expense pricing.
c. discount pricing.
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d. fixed expense pricing.
39. A firm can reduce its breakeven volume by:
a. decreasing fixed costs.
b. decreasing contribution margin.
c. increasing variable costs.
d. lowering selling price.
40. Jayce is searching for a ticket home from college for semester break. While he has checked several websites and all
the airlines that fly the route he will take, it seems like every airline is charging the same price. It appears that the
airlines are using:
a. competitive parity pricing.
b. value pricing.
c. market-based pricing.
d. cost-plus pricing.
41. Prices are related to the other elements of the marketing mix and to virtually all marketing outcomes. If a firm has a
strong desire to increase its market share, it is likely it will:
a. decrease the price of the product.
b. increase the price of the product.
c. use a prestige pricing approach.
d. match the competitors price.
42. A firm can reduce its breakeven volume by:
a. increasing contribution margin.
b. decreasing contribution margin.
c. decreasing variable costs.
d. lowering selling price.
43. MycroFiber is a producer of microfiber material for the auto detailing industry. Jamal, the owner of MycroFiber is
highly skilled in the technical and manufacturing areas, but does not understand pricing. Jamal knows he wants to cover
the cost of production when selling his material and needs revenue to cover his overhead costs and to make a profit. To
be sure he meets these goals, Jamal decides to take a cost-based pricing approach. If MycroFiber’s cost of production is
$4 a square yard, Jamal and Jamal prices his material at $10 a square yard, what is MycroFiber’s margin percentage?
a. 60%.
b. 40%.
c. 250%.
d. 150%.
44. Vandelay Industries manufactures a range of latex products. Vandelay recently purchased new equipment to
manufacture latex gloves for the medical community. The new machinery costs $70,000 and can produce 40,000 pairs
of gloves each day. The raw latex material for each pair of gloves costs $.03 and Vandelay sells the gloves at a wholesale
price of $.10 a pair. Considering only the cost of the new equipment, how many pairs of gloves does Vandelay need to
sell to pay for the new machinery?
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a. 1,000,000
b. 700,000
c. 70,000
d. 7,000
45. MycroFiber is a producer of microfiber material for the auto detailing industry. Jamal, the owner of MycroFiber is
highly skilled in the technical and manufacturing areas, but does not understand pricing. Jamal knows he wants to cover
the cost of production when selling his material and needs revenue to cover his overhead costs and to make a profit. To
be sure he meets these goals, Jamal decides to take a cost-based pricing approach and use a 50% markup percentage. If
MycroFiber’s cost of production is $4 a square yard, Jamal will price his material at:
a. $6 a square yard.
b. $2 a square yard.
c. $4 a square yard.
d. $8 a square yard.
46. Prestige pricing objectives emphasize:
a. quality and exclusivity.
b. revenue or sales maximization.
c. competitive parity.
d. market share minimization.
47. Deena operates a coffee shop located near the university campus. Recently, Deena decided to raise the price of all
the products she sells. According to the law of demand, Deena can expect:
a. sales to decrease.
b. sales to increase.
c. to incur an operating loss.
d. to incur an operating profit.
48. Mitch and Jill were visiting the Eiffel Tower when there was a downpour. They were willing to pay 25 euros for a
poorly made umbrella that would usually sell for 10 euros or less. This illustrates the fact that:
a. The relationship between price and potential demand can be driven by many factors.
b. That cost plays no role in pricing decisions.
c. Consumers act in irrational manner.
d. Travelers do not understand exchange rates.
49. Parker Industries is a small company with a big name! Parker Industries is actually a one-person company that
imports strands of LED lights from China and sells them through its website. Parker’s only overhead is a storage unit for
inventory that costs $125 a month and a $25 monthly fee for website hosting. Currently, Parker imports the lights for
$.99 each (including inbound shipping) and sells them for $4.49. Parker also pays shipping expenses of $.50 per light
strand. What is Parker’s variable cost?
a. $1.49
b. $.99
c. $3.99
d. $3.00
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50. While both use a mathematical calculation, there is an important different between “markup” and “margin.” Which
of the following is correct?
a. Markup is a percentage added to the cost of the product and margin is a percentage of the sales price left
over after paying for the cost of the product.
b. Margin is a percentage added to the cost of the product and markup is a percentage of the sales price left
over after paying for the cost of the product.
c. Markup can only be calculated based on selling price, while margin is only calculated based on
wholesale price.
d. Margin is calculated based on variable costs while markup is based on fixed costs.
51. A company incurs fixed costs of $35,000 and average variable costs of $7 per item. This company sells
10,000 units and just breaks even. The unit selling price for the product is:
a. $10.00
b. $7.35
c. $17.00
d. $10.50
52. You are head of sales and marketing for your cowboy boots manufacturing firm. It has been a chaotic
product year, with a great deal of input from many stakeholders: consumer advocacy groups, employees,
competitors, and shareholders. You are meeting with the CEO to establish pricing objectives for the upcoming
product year.
Required:
Which of the following factors will you consider as you establish your firm’s pricing objectives?
a. Consumer advocacy groups’ concerns
b. Sales reps’ compensation packages
c. Competitors’ complaints
d. The firm’s survival
e. dissident shareholders’ complaints
53. A firm with $50,000 in fixed costs, selling price of $25 per unit, and variable costs of $5 a unit has a breakeven
volume of:
a. 2,500.
b. 2,000.
c. 10,000.
d. 1,667.
54. Nakamichi introduced a set of true high-fidelity headphones at a price of $2,000. Most likely, Nakamichi was
attempting to:
a. take a prestige pricing approach.
b. take a sales volume approach.
c. take a pricing parity approach.
d. take a market share maximization approach.
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55. Which of the following is an example of a volume pricing objective?
a. Setting price in line or on parity with competition
b. Emphasizing the benefits or value a product provides
c. Reducing price to gain a higher share of the market
d. Establishing a relatively high price to create a high quality image
56. Krizia is excited about her bakery that she just started. As a marketing major, Krizia knows that setting the correct
price will be critical to the success of her bakery. In particular, Krizia wants to get a very good grip on costs, as she
knows costs establish the ___________ for her prices.
a. floor
b. competitive positioning
c. ceiling
d. profits
57. A firm with $50,000 in fixed costs, selling price of $25 per unit, and variable costs of $5 a unit is currently operating
at breakeven volume. This firm has:
a. profits of zero.
b. losses equal to fixed costs.
c. sales of 5,000 units.
d. profits of $50,000.
58. Maddie noticed that many students on campus had t-shirts and sweatshirts with Greek organization letters or club
names on them. Recognizing that there was a huge market for this attire, Maddie rented a store front and a silk
screening machine to get into the t-shirt business. Maddie’s rent is $1,000 a month, including utilities. The silk screen
machine leases for $300 a month. Maddie can buy blank t-shirts for $6 each and sweatshirts for $10 each. Maddie
calculated the cost of materials for the silk screening at $2 per unit. Considering only the figures presented above, what
are Maddie’s fixed costs?
a. $1300 a month
b. $1000 a month
c. $8 a unit
d. $700 a month
59. Mayra works at a jewelry store on the weekends. Roman, the store manager, asked her to help him with putting
price tags on some new jewelry for display. Mayra was surprised that there was not much thought to the pricing
process – all they did was look on the invoice for the price they paid, double that amount, and put that figure on the
price tag. Therefore, an item that they paid $125 was priced at $250. The jewelry store’s markup percentage is:
a. 100%
b. 150%
c. 200%
d. 50%
60. Maddie noticed that many students on campus had t-shirts and sweatshirts with Greek organization letters or club
names on them. Recognizing that there was a huge market for this attire, Maddie rented a store front and a silk
screening machine to get into the t-shirt business. Maddie’s rent is $1,000 a month, including utilities. The silk screen
machine leases for $300 a month. Maddie can buy blank t-shirts for $6 each and sweatshirts for $10 each. Maddie
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calculated the cost of materials for the silk screening at $2 per unit. If Maddie sells a screened t-shirt for $15 and a
sweatshirt for $25 each, which would she prefer the customer purchase?
a. Sweatshirt because the contribution margin is higher
b. T-shirt because the cost of production is lower
c. Sweatshirt because the selling price is higher
d. T-shirt because the contribution margin is higher
61. Walter White is a pharmaceutical distributor. Walter takes a cost-based approach to pricing his products by tripling
his price for each of his products. For example, products that Walter imports from Mexico for $2, he sells for $6. What
is Walter’s markup percentage?
a. 200%
b. 300%
c. 33%
d. 600%
62. Vandelay Industries manufactures a range of latex products. Vandelay recently purchased new equipment to
manufacture latex gloves for the medical community. The new machinery leases for $70,000 annually and can produce
10,000 pairs of gloves each day. The raw latex material for each pair of gloves costs $.03 and Vandelay sells the gloves
at a wholesale price of $.10 a pair. Currently, sales are 2,500,000 annually. What is the profit on the gloves if the
machinery lease is the only fixed cost considered?
a. $105,000
b. $250,000
c. $75,000
d. $175,000
63. Which of the following pricing objectives reflects marketers’ recognition of the role of price in creating an
overall image of the firm and its product offerings as being high quality or exclusive?
a. A value objective
b. A volume or sales objective
c. A competition objective
d. A prestige objective
64. Vandelay Industries manufactures a range of latex products. To set the price of its products, George, the CEO of
Vandelay, calculates the total cost associated with the manufacturing of each product, then multiples that by 1.5 to get
the sales price. Therefore, a product that cost $10 manufacture would sell for $15. Vandelay’s markup percentage is:
a. 50%
b. 150%
c. 25%
d. You cannot calculate Vandelay’s markup from the information provided
65. Javier is the business manager of his college. In his role, Javier makes a lot of business decisions. Javier is currently
considering installing a vending machine in one of the dorm for soft drinks. The machine rents for $200 a month and the
electrical use is minimal. Javier can buy soft drinks for $.25 each and plans on charging $.75 each from the vending
machine. How many drinks would have to be sold a month to cover the cost of the machine?
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b. 200
c. 800
d. 267
66. Vandelay Industries manufactures a range of latex products. Vandelay recently purchased new equipment to
manufacture latex gloves for the medical community. The new machinery leases for $70,000 annually and can produce
10,000 pairs of gloves each day. The raw latex material for each pair of gloves costs $.03 and Vandelay sells the gloves
at a wholesale price of $.10 a pair. Currently, sales are 2,500,000 annually. What impact would a $.01 reduction in
variable cost have on overall profit?
a. Increase in profit of $25,000
b. Decrease in profit of $25,000
c. Increase in profit of $200,000
d. Increase in profit of $15,000
67. Jamara has started a home party business that hosts parties and those attending paint signs. Jamara must pay $500
a year to be a representative for Paint A Sign. In addition, Jamara buys all the materials for the parties, including the
metal base, the paints, brushes, stencils, and transfers. Currently, these items all add up to $10 on average. Jamara
charges each participant $25 for each sign they make. For Jamara’s Paint A Sign business, the $500 is a fixed cost per
year. Which of the following is true?
a. Jamara will pay the Paint A Sign company $500 regardless of the number of parties she hosts.
b. Jamara will have to pay Paint A Sign $500 for every party she hosts.
c. Jamara will lose money if she has less than 100 participants a year.
d. Jamara’s annual fixed costs will be higher than her variable costs regardless of the number of participants.
68. Which of the following is a limitation of breakeven analysis?
a. Consumer demand for products or services is not considered.
b. The analysis fails to separate fixed costs from variable costs.
c. The calculations assume that per-unit variable costs will change as different amounts are produced.
d. It is difficult to understand and apply.
69. A firm has $50,000 in fixed costs, a selling price of $25 per unit, and variable costs of $5 a unit. If the fixed costs are
reduced to $40,000:
a. Breakeven volume will decrease.
b. Breakeven volume will increase.
c. Profits will be reduced.
d. Selling price will be increased.
70. Customer demand is an important consideration in establishing prices. Demand, or at least potential demand,
actually establishes the ___________ for a firm’s prices.
a. ceiling
b. losses
c. profits
d. floor
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71. The breakeven point is the point at which:
a. revenue from sales equals the variable cost of the product.
b. the supply curve intersects the demand curve.
c. total revenue from sales equals total cost.
d. marginal cost runs above the marginal revenue curve.
72. A cost that remains stable at any production level within a certain range is called a(n) _____ cost.
a. variable
b. fixed
c. average total
d. marginal
73. Javier is the business manager at his college. In his role, Javier makes a lot of business decisions. Javier has installed
a vending machine in a dorm for soft drinks. The machine rents for $200 a month and the electrical use is minimal.
Javier buys soft drinks for $.25 each and charges $.75 each from the vending machine. Currently, the machine has a
sales volume of 400 cans a month. What is the current profit or loss from the machine?
a. $0
b. Loss of $200
c. Profit of $300
d. Profit of $100
74. MycroFiber is a producer of microfiber material for the auto detailing industry. Jamal, the owner of MycroFiber is
highly skilled in the technical and manufacturing areas, but does not understand pricing. Jamal knows he wants to cover
the cost of production when selling his material and needs revenue to cover his overhead costs and to make a profit. To
be sure he meets these goals, Jamal decides to take a cost-based pricing approach by calculating the cost of production
and adding a(n) ________.
a. markup percentage
b. cost adjustment
c. operating profit
d. discount rate
75. Vandelay Industries manufactures a range of latex products. To set the price of its products, George, the CEO of
Vandelay, calculates the total cost associated with the manufacturing of each product, then multiples that by 1.5 to get
the sales price. Therefore, a product that cost $10 for Vandelay to manufacture would sell for $15. Vandelay’s margin
percentage on the sale is:
a. 33.3%.
b. 50%.
c. 150%.
d. 25%.
76. Javier is the business manager at his college. In his role, Javier makes a lot of business decisions. Javier has installed
a vending machine in a dorm for soft drinks. The machine rents for $200 a month and the electrical use is minimal.
Javier buys soft drinks for $.25 each and charges $.75 each from the vending machine. Currently, the machine has a
sales volume of 400 cans a month. Javier thinks lowering the price to $.60 each will increase sales by 100 cans a month.
What affect will this have on profit or loss?
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a. Loss of $25
b. Loss of $100
c. Profit of $100
d. Profit of $200
77. A cost that changes with the level of production is called a(n) _____ cost.
a. variable
b. fixed
c. average total
d. marginal
78. Maddie noticed that many students on campus had t-shirts and sweatshirts with Greek organization letters or club
names on them. Recognizing that there was a huge market for this attire, Maddie rented a store front and a silk
screening machine to get into the t-shirt business. Maddie’s rent is $1,000 a month, including utilities. The silk screen
machine leases for $300 a month. Maddie can buy blank t-shirts for $4 each and sweatshirts for $10 each. Maddie
calculated the cost of materials for the silk screening at $2 per unit. If Maddie sells a screened t-shirt for $20 and a
sweatshirt for $25 each, which would she prefer the customer purchase?
a. T-shirt because the contribution margin is higher
b. Sweatshirt because the cost of production is lower
c. Sweatshirt because the selling price is higher
d. T-shirt because the cost of production is lower
79. Taylor recently went shopping for the first time at Farm to Home, a whole foods grocery store that emphasizes
natural, hormone-free products. Taylor usually shops at Walmart and pays $.88 for a gallon of milk. At Farm to Home, a
gallon of milk was $9.00. It seems that Farm to Home is using a:
a. prestige pricing approach.
b. sales volume approach.
c. pricing parity approach.
d. market share maximization approach.
80. A firm with $50,000 in fixed costs, selling price of $25 per unit, and variable costs of $5 a unit has a contribution
margin of:
a. $20.
b. $25.
c. $30.
d. $2000.
81. Vandelay Industries manufactures a range of latex products. To set the price of its products, George, the CEO of
Vandelay, calculates the total cost associated with the manufacturing of each product, then multiples that by 1.5 to get
the sales price. Therefore, a product that cost $10 manufacture would sell for $15. Vandelay is using:
a. cost-based pricing.
b. invoice pricing.
c. discount pricing.
d. sales volume pricing.
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82. A firm has $50,000 in fixed costs, a selling price of $25 per unit, and variable costs of $5 a unit. If the fixed costs
increase to $60,000:
a. Breakeven volume will increase.
b. Breakeven volume will decrease.
c. Profits will be increased.
d. Selling price will be decreased.
83. Maddie noticed that many students on campus had t-shirts and sweatshirts with Greek organization letters or club
names on them. Recognizing that there was a huge market for this attire, Maddie rented a store front and a silk
screening machine to get into the t-shirt business. Maddie’s rent is $1,000 a month, including utilities. The silk screen
machine leases for $300 a month. Maddie can buy blank t-shirts for $6 each and sweatshirts for $10 each. Maddie
calculated the cost of materials for the silk screening at $2 per unit. For pricing decisions, Maddie should consider the
$2 cost of silk screening material as a:
a. variable cost.
b. fixed cost.
c. deductible expense.
d. marginal expense.
84. The amount of product that must be sold at a given price to generate sufficient revenue to cover total costs – both
fixed and variable is the:
a. breakeven volume.
b. maximum sales volume.
c. fixed cost coverage level.
d. gross sales.
85. Champagne is a product with considerable mystic. There is rarely a James Bond movie where he does not drink some
Champagne with a beautiful woman! Champagne is typically associated with the “finer things in life.” However, even
among Champagnes, some are special – often just by the pricing strategy taken. For example, Dom Pérignon Rose Gold
in the 6-liter bottle is priced at nearly $50,000, assuring this Champagne is perceived as “the finest thing in life.” Dom
Pérignon is using:
a. prestige pricing.
b. high line pricing.
c. ultra pricing.
d. market-based pricing.
86. Walter White is a pharmaceutical distributor. Walter takes a cost-based approach to pricing his products by tripling
his price for each of his products. For example, products that Walter imports from Mexico for $2, he sells for $6. What
is Walter’s sales margin?
a. $4
b. $6
c. $2
d. 600%
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87. Maddie noticed that many students on campus had t-shirts and sweatshirts with Greek organization letters or club
names on them. Recognizing that there was a huge market for this attire, Maddie rented a store front and a silk
screening machine to get into the t-shirt business. Maddie’s rent is $1,000 a month, including utilities. The silk screen
machine leases for $300 a month. Maddie can buy blank t-shirts for $6 each and sweatshirts for $10 each. Maddie
calculated the cost of materials for the silk screening at $2 per unit. For pricing decisions, Maddie should consider her
$1,000 rent as a:
a. fixed cost.
b. variable cost.
c. semi-variable cost.
d. loss.
88. The pricing technique used to determine the number of products that must be sold at a specified price to
generate enough revenue to cover total cost is known as _____ analysis.
a. cost-plus
b. marginal
c. breakeven
d. incremental-cost
89. Vandelay Industries manufactures a range of latex products. To set the price of its products, George, the CEO of
Vandelay, calculates the total cost associated with the manufacturing of each product, then multiples that by 1.5 to get
the sales price. Therefore, a product that cost $10 for Vandelay to manufacture would sell for $15. Vandelay’s margin
on the sale is:
a. $5.
b. $10.
c. $15.
d. $20.
90. Pricing is a highly visible component of a firm’s marketing mix and an easy tool for obtaining a differential advantage
over competitors. However, when competitors continually undercut each other to gain that advantage, it can lead to a price
war that damages all companies involved. When firms have identical or very similar products and price information is
readily available – for example, Coca-Cola and Pepsi – a common pricing approach to avoid price wars is:
a. competitive-parity pricing.
b. market-based pricing.
c. commodity pricing.
d. bargain pricing.
91. Walter White is a pharmaceutical distributor. Walter takes a cost-based approach to pricing his products by tripling
his price for each of his products. For example, products that Walter imports from Mexico for $2, he sells for $6. What
is Walter’s margin percentage?
a. 67%
b. 33%
c. 300%
d. 200%
92. Which of the following is NOT one of the three foundations of pricing?
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a. Production efficiency
b. Costs
c. Potential demand
d. Competition
93. The bookstore on your college campus uses a cost-based pricing approach with a 50% markup percentage. A new
textbook has a wholesale price of $200. What will you be charged for the textbook?
a. $300
b. $100
c. $250
d. $50
94. Designer companies such as Prada, Chanel, and Cartier tend to price their product very high to infer quality and
exclusivity to potential customers. Strategically, this approach is known as a:
a. prestige objective.
b. sales volume objective.
c. competition objective.
d. loss avoidance objective.
95. A firm’s breakeven volume will increase if:
a. fixed costs increase.
b. contribution margin increases.
c. variable costs decrease.
d. selling price increases.
96. Vandelay Industries manufactures a range of latex products. Vandelay recently purchased new equipment to
manufacture latex gloves for the medical community. The new machinery costs $70,000 and can produce 40,000 pairs
of gloves each day. The raw latex material for each pair of gloves costs $.03 and Vandelay sells the gloves at a wholesale
price of $.10 a pair. Vandelay’s contribution margin for a pair of gloves is:
a. $.07.
b. $.13.
c. $.10.
d. $.40.
97. Maddie noticed that many students on campus had t-shirts and sweatshirts with Greek organization letters or club
names on them. Recognizing that there was a huge market for this attire, Maddie rented a store front and a silk
screening machine to get into the t-shirt business. Maddie’s rent is $1,000 a month, including utilities. The silk screen
machine leases for $300 a month. Maddie can buy blank t-shirts for $6 each and sweatshirts for $10 each. Maddie
calculated the cost of materials for the silk screening at $2 per unit. If Maddie sells a screened t-shirt for $15 each, what
is the contribution margin for t-shirts?
a. $7 a unit
b. $9 a unit
c. $13 a unit
d. $15 a unit
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Class:
Date:
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98. Krizia is excited about her bakery that she just started. In her bakery, rent, utilities, and salaries of non-production
staff will all be elements of:
a. fixed costs.
b. variable costs.
c. profit margin.
d. sales price.
99. A retailer that uses a cost-based pricing approach would base its price on:
a. the wholesale cost of the item.
b. the competitor’s price of the item.
c. the retailer’s overall fixed costs.
d. customer demand.
100. It is interesting that gasoline stations near one another normally have the very same price – down to the
tenth of a cent a gallon! From a strategic pricing perspective, we can conclude gasoline stations tend to use a:
a. competition objective.
b. sales volume objective.
c. prestige objective.
d. loss avoidance objective.
101. Maddie noticed that many students on campus had t-shirts and sweatshirts with Greek organization letters or club
names on them. Recognizing that there was a huge market for this attire, Maddie rented a store front and a silk
screening machine to get into the t-shirt business. Maddie’s rent is $1,000 a month, including utilities. The silk screen
machine leases for $300 a month. Maddie can buy blank t-shirts for $6 each and sweatshirts for $10 each. Maddie
calculated the cost of materials for the silk screening at $2 per unit. For pricing decisions, Maddie should consider her
$300 lease on the machine as a:
a. fixed cost.
b. variable cost.
c. semi-variable cost.
d. loss.
102. Jamara has started a home party business that hosts parties and those attending paint signs. Jamara must pay
$500 a year to be a representative for Paint A Sign. In addition, Jamara buys all the materials for the parties, including
the metal base, the paints, brushes, stencils, and transfers. These items all add up to $10 on average. Jamara charges
each participant $25 for each sign they make. For Jamara’s Paint A Sign business, the $500 franchise fee is a:
a. fixed cost.
b. variable cost.
c. profit.
d. total cost.
103. There are a variety of pricing strategies available to firms. For example, firms selling perishable goods – such as a
produce shop – might want to make sure all the inventory is sold. This firm would likely have a
a. sales volume objective.
b. competition objective.