Exam 18: Price Setting in the Business World

A retailer of men's suits who is advertising a popular brand of dress shirts at a reduced price to attract customers is using

Which of the following statements is true about break-even analysis?

Which of the following is true regarding pricing?

Mark is trying to determine his firm's average cost per unit of production.He finds that the cost for all labor and materials is $80,000,and fixed overhead expenses are $40,000.If the company produces 20,000 items in the time period,the average cost is

Which type of pricing involves setting one price for a set of products?

Use this information for questions that refer to the Sporting Products,Inc.(SPI)case. Randy Todd,marketing manager for Sporting Products,Inc.(SPI),is thinking about how changes taking place among retailers in his channel might impact his strategy. SPI sells the products it produces through wholesalers and retailers.For example,SPI sells basketballs to Wholesale Supply for $8.00.Wholesale Supply uses a 20 percent markup,and most of its "sport shop" retailer customers,like Robinson's Sporting Goods,use a 33 percent markup to arrive at the price they charge final consumers.However,one fast-growing retail chain,Sports Depot,uses only a 20 percent markup for basketballs,even though it pays Wholesale Supply the same price as other retailers.Furthermore,Sports Depot occasionally lowers the price of basketballs and sells them at cost,to draw customers into its stores and stimulate sales of its pricey basketball shoes. Sports Depot is also using other pricing approaches that are different from the sports shops that usually handle SPI products.For example,Sports Depot prices all its baseball gloves at $20,$40,or $60-with no prices in between.There are three big bins,one for each price point. Randy is also curious about how Sports Depot's new strategy to increase sales of tennis balls will work out.The basic idea is to sell tennis balls in large quantities to nonprofit groups,who resell the balls to raise money.For example,a service organization at a local college bought 2,000 tennis balls printed with the college logo.Sports Depot charged $.50 each for the tennis balls,plus a $500 one-time charge for the stamp to print the logo.The service group plans to resell the tennis balls for $2.50 each and contribute the profits to a shelter for the homeless. Randy is not certain if Sports Depot's ideas will affect SPI's plans.For example,SPI is considering adding tennis racquets to the lines it produces.This would require a $500,000 addition to its factory,as well as the purchase of new equipment that costs $1,000,000.The variable cost to produce a tennis racquet would be $20,but Todd thinks that SPI could sell the racquet at a wholesale price of $40 each.That would allow most retailers to add their normal markup and make a profit.However,Sports Depot may sells the racquet at a lower than normal price. Which of the following would NOT be one of SPI's fixed costs in the production of basketballs?

A major problem with average-cost pricing is that it does not allow for cost variations at different levels of output.

Which of the following is true of the markup used by different firms in the same line of business?

The price most consumers expect to pay for a product is called the leader price.

A regional manager for a chain of auto parts stores visits one of the stores in the chain.He looks in the store's warehouse and finds about 100 cases of motor oil that have been sitting in the warehouse for over one year.Upon inspection,he finds that in each case,one of the twelve cans of oil has leaked,thus soaking through the box and making the case unfit for sale.The regional manager instructs the store manager to unpack all the cases,discard the leaking cans,clean up the remaining cans,and contact the oil company for new boxes.He tells the store manager to repackage the remaining cans in the new boxes and to sell the cases to customers at the retailer's cost with no added markup.He explains to the store manager that moving this inventory will not result in immediate profit,but that it will benefit the store by improving the

Which of the following pricing tools combines both the cost-oriented price setting approach and the demand-oriented price setting approach?

As output increases,a firm's average fixed cost will probably go down.

In a down economy,a local florist surveys her customers to determine the amount they feel comfortable spending for a bouquet of flowers.Then she displays bouquets costing that exact amount in her refrigerated case.This is an example of