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c. prestige objective.
d. loss avoidance objective.
104. Fixed costs typically include items such as:
a. lease payments, administrative staffing, and insurance costs that remain stable at any production level
within a certain range.
b. labor costs that change with the level of production.
c. commission as a percentage of sales paid to salesreps.
d. raw materials.
105. Azature introduced the “world’s most expensive nail polish.” The Black Diamond nail polish contains 267 carats of
crushed black diamond powder and a price of a whopping $250,000 a bottle. Azature is using a(n) _______ approach.
a. prestige pricing
b. price-line pricing
c. ultra-pricing
d. competitive parity pricing
106. 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 dorms 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. What is the contribution margin on the soft drinks?
a. $.50
b. $.25
c. $.75
d. $1.00
107. 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. If sales increase 100 units and costs remain the same, the firm will:
a. have a profit of $2000.
b. have a loss of $2000.
c. increase variable costs of $2500.
d. lower its total fixed costs.
108. At the breakeven sales volume:
a. Profits are zero.
b. Losses are equal to fixed costs.
c. Profits are equal to variable costs.
d. Losses are equal to variable cost times units sold.
109. Which of the following actions is most likely to be taken by a company in order to implement the value
pricing objective?
a. Distributing free samples of the product to create awareness about the product among the consumers
b. Convincing consumers that the quality of their lower-priced product is the same as that of a
comparatively higher-priced product sold by a competitor
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c. Convincing consumers of the prestige associated with the product
d. Distributing free gifts along with the product during its introductory stage
110. 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 found a vendor that would provide the same product for $.89 each including shipping, what would
happen?
a. Variable cost would decrease
b. Fixed cost would decrease
c. Contribution margin would decrease
d. Breakeven volume would increase
111. 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
is the variable cost for a t-shirt Maddie silk screens?
a. $8 a unit
b. $6 a unit
c. $10 a unit
d. $4 a unit
112. 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. The jewelry store was using:
a. cost-based pricing.
b. invoice pricing.
c. discount pricing.
d. sales volume pricing.
113. Almost all fast-food restaurants offering a short menu with low prices to compete with the other restaurants.
These are intended to attract very price conscious consumers and are usually a “dollar menu” or offered at prices such
as $.99 and $1.49. This approach is referred to as:
a. value pricing.
b. deep discounting.
c. cost-plus pricing.
d. basic pricing.
114. 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
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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:
a. variable cost.
b. fixed cost.
c. loss.
d. total cost.
115. A five-pound bag of roasted peanuts sells for $8, and the average variable cost is $4 per bag. If the total
fixed cost for the roasted peanuts is $80,000, the breakeven point in bags is:
a. 20,000
b. 40,000
c. 80,000
d. 120,000
116. Maddie noticed that many students on campus had 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 sweatshirt business. Maddie’s rent is $1,000 a month, including utilities. The silk screen
machine leases for $300 a month. Maddie can buy sweatshirts for $10 each and determined the cost of materials for
the silk screening at $2 per unit. Considering just the figures provided above, how many sweatshirts does she need to
sell each month to breakeven if she prices the screened sweatshirts at $25?
a. 100
b. 200
c. 425
d. 150
117. When Josh stopped at the convenience store for a drink, he noticed that in both the cooler and the fountain drinks
the prices of all the soft drinks were identical. You could choose Coke, Pepsi, Dr. Pepper, Mountain Dew, or many
others, but they were all the same price. This is an example of:
a. competitive parity pricing.
b. discount pricing.
c. prestige pricing.
d. market share pricing.
118. Firms expect each of their products to:
a. cover the direct costs of production and help contribute to the regular fixed costs.
b. cover the direct costs of production, but not contribute to the fixed costs.
c. cover the organizations complete fixed costs.
d. cover the regular fixed costs of the organization and contribute to the costs of production.
119. In most economies, _______refers to the amount of funds required to purchase a product.
a. price
b. cost
c. profit
d. demand
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120. 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 fixed costs?
a. $150
b. $125
c. $.99
d. $1.49
121. An organization’s total costs are typically divided into:
a. variable costs and fixed costs.
b. liabilities and assets.
c. expenses and revenues.
d. salaries and overhead.
122. The bookstore on your university campus uses a pricing approach where all items are marked up 50%. For a new
shipment of new school hoodies, the items wholesale price is $40, so the selling price is $60. What is the contribution
margin for the hoodies?
a. $20
b. $40
c. 50%
d. $100
123. 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. If sales decrease 50 units and costs remain the same, the firm will:
a. have a loss of $1,000.
b. have a profit of $2,000.
c. increase variable costs of $2,500.
d. lower its total fixed costs.
124. Jennifer is looking for a wedding present for her fiancé and is considering buying him a watch. She likes
luxury items and is willing to spend between $4,000 and $10,000 on the gift. She visits several jewelry stores
and realizes that the prices are the same for Rolex and Philippe Patek brand watches and each store tells her
these brands are never discounted. What type of pricing objective is utilized by Rolex and Philippe Patek?
a. Prestige
b. Profit
c. Volume
d. Meeting competitors
125. Maddie noticed that many students on campus had t-shirts 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 determined the cost of materials for the silk screening at $2.50
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per unit. Considering just the figures provided above, how many t-shirts does she need to sell each month to breakeven
if she prices the screened t-shirts at $15?
a. 200
b. 400
c. 225
d. 153
126. The Acme Flashlight Company breaks even at 20,000 flashlights at $6 each, with the average variable cost
per flashlight of $4. The amount of its fixed costs is:
a. $20,000
b. $40,000
c. $60,000
d. $80,000
127. Firms with a volume or sales objective are most likely to:
a. reduce prices to maximize sales or gain a specific market share.
b. charge a higher price than most competitors to increase revenue.
c. raise prices to maintain prestige.
d. match competitors’ prices.
128. 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 raising the price to $.80 will not have any effect on sales. What
impact would raising the price to $.80 have on overall profit or loss?
a. Profit of $20
b. Profit of $320
c. Profit of $100
d. Profit of $200
129. 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 wants to achieve a 50% margin on sales. If MycroFiber’s cost of production is $4 a square yard,
Jamal will price his material at:
a. $8 a square yard.
b. $6 a square yard.
c. $4 a square yard.
d. $2 a square yard.
130. Firms with a prestige pricing objective are most likely to:
a. charge a higher price than most competitors to enhance their perceived quality.
b. reduce prices to maximize sales or gain a specific market share.
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c. charge a lower price than most competitors to increase revenue.
d. match competitors’ prices.
131. Breakeven sales volume is calculated as:
a. Breakeven point (in units) = Total Fixed Costs/Contribution Margin
b. Breakeven point (in units) = Total Variable Costs/Contribution Margin
c. Breakeven point (in units) = Total Costs/Contribution Margin
d. Breakeven point (in units) = Total Costs/Selling Price
132. Total fixed costs divided by the product’s contribution margin gives us:
a. breakeven point in units.
b. total profit.
c. total variable costs.
d. average total cost.
133. 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 found a comparable storage for $100 a month, what would
happen?
a. Fixed cost would decrease
b. Variable cost would decrease
c. Contribution margin would decrease
d. Breakeven volume would increase
134. Fixed costs typically include items such as:
a. lease payments, administrative staffing, and insurance costs, that remain stable at any production level
within a certain range.
b. labor costs that change with the level of production.
c. commission as a percentage of sales paid to sales reps.
d. raw materials.
135. A firm can price its items at the same price as competitors, or try to sell its products at a price higher than its
competitors. To sell at a price higher than the competition, a firm would need to:
a. enhance features or otherwise differentiate its product and justify the higher price.
b. reduce the production costs so the profit margin would be higher.
c. make sure its price end in a “.99.”
d. be willing to lose money on that product line.
136. Items such as lease payments, administrative staffing, and insurance costs, that remain stable at any production level
within a certain range are known as:
a. fixed costs.
b. variable costs.
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c. profits.
d. total costs.
137. Deena operates a coffee shop located near the university campus. Her major competitor is Kaprice’s Coffee on the
corner across the street from Deena’s Café. Recently, Deena decided to raise the price of all the products she sells.
Since they are close competitors with Deena’s Café, Kaprice’s can most likely experience:
a. an increase in sales.
b. a decrease in sales.
c. an operating loss.
d. an operating profit.
138. 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 web site 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 contribution margin?
a. $3.00
b. $3.50
c. $3.99
d. $4.49
139. 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. Considering only these costs, Jamara’s Paint A Sign business breakeven
volume is:
a. 33.3 participants a year.
b. 50 participants a year.
c. 20 participants a year.
d. 14.29 participants a year.
140. Brands which can differentiate themselves from competitors by features, quality, or service are able to:
a. charge a higher price than competitors.
b. reduce fixed costs.
c. reduce variable costs.
d. increase the breakeven volume.
141. When a company sells its goods or services at a price less than the overall costs, the company incurs a:
a. loss.
b. profit.
c. contribution margin.
d. negative transaction.
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142. 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 300 units a month, what is Parker’s monthly profit or loss?
a. $750
b. $1347
c. $372.50
d. −$74.50 (loss)
143. A product is priced to sell for $12 with average variable costs of $8. The company’s total fixed costs are
$120,000. The minimum number of units that must be sold in order to the breakeven point with zero profits are:
a. 40,000
b. 30,000
c. 15,000
d. 10,000
144. Items such as raw materials and labor costs, which change with the level of production, are known as:
a. variable costs.
b. fixed costs.
c. losses.
d. total costs.
145. 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 margin percentage on that
item when sold would be:
a. 50%.
b. 100%.
c. 200%.
d. 25%.
146. A pricing strategy that emphasizes benefits of a product in comparison to the price and quality levels of
competing offerings is called _____ pricing.
a. prestige
b. image
c. volume
d. value
147. Analysis has shown that ingredients account for less than 5 percent of a perfume’s cost. So if a perfume
costs $135 or more per ounce, it reflects the marketer’s adoption of a pricing objective that focuses on:
a. expanding market share.
b. creating image or prestige.
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c. meeting competitors’ prices.
d. maximizing sales.
148. Several factors influence the best price. In particular three core issues influence the correct price. Which of the
following is NOT one of the three foundations of pricing?
a. Supply
b. Costs
c. Potential demand
d. Competition
149. You are asked by a non-marketing executive of your hip-hop music company to clarify some financial
language she heard at a recent annual presentation to investors. She asks you to give her a simple one-sentence
definition of “breakeven analysis.”
Required:
Which of the following definitions meets her request for a simple one-sentence definition of “breakeven
analysis?”
a. “We have been cutting records for years, so our customers are used to paying a certain amount for our
albums. We keep our price constant to get repeat business.”
b. “We first do our research to find out what price our competitors are selling their records for. Then we
use that number to figure out how many records we need to cut to make a larger profit than our competitors.”
c. “We first figure out the number of records we need to sell at a set price minus records returned for
refunds. That amount of money must be enough to cover the total costs of our producing the records.”
d. “We use all our information from the previous year’s sales, then we add 10 percent to the production and
10 percent to the price.”
e. “We want to make sure that we sell all the albums that we produce, so we start out at a full price, and
make discount adjustments along the way.”
Indicate one or more answer choices that best complete the statement or answer the question.
150. You would like to apply breakeven analysis to know when your startup tutoring venture will turn a profit. Which of
the following considerations must you take into account?
a. The hourly wage you pay your tutors.
b. The rent you pay your office landlord.
c. The hourly price you intend to charge for tutoring.
d. The demand for tutoring services in your market.
e. All of the above must be considered.
151. Explain the concept of value pricing.
152. What are the major weaknesses of traditional breakeven analysis?
153. Define price. Explain why setting prices can be a difficult process.
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Answer Key
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