Deck 16: Pricing and Credit Decisions

Question 1

With a skimming price strategy, prices are set lower than what will be the normal, long-range price to gain more market share.

Answer 1

False

Question 2

If demand for a product is elastic, a change in price will have little effect on total revenues.

Answer 2

False

Question 3

Cost analysis can identify a level below which a price should not be set under normal circumstances.

Answer 3

True

Question 4

Prestige pricing (setting a high price to convey an image of high quality or uniqueness) is a pricing tactic that reflects competitive advantage.

Question 5

Break-even analysis is an accurate tool for pricing because it points directly to the correct price for a given product.

Question 6

Markups may be expressed as a percentage of either the firm's cost or the industry-standard cost.

Question 7

Because small businesses are small by definition, pricing and credit considerations are relatively unimportant to their overall performance.

Question 8

Variable pricing strategy occurs where a business sets and advertises a fixed price but gives a discount for reasons such as the customer's amount purchased.

Question 9

Services are generally easier to price than products.

Question 10

A small business in competition with larger firms is seldom in a position to function as a price leader.

Question 11

The best pricing practice is to undercut competitors' prices.

Question 12

Average pricing is an appropriate pricing approach for small businesses because the method takes into consideration both fixed and variable costs.

Question 13

Marketing expenses, factory equipment costs, and salaries of office personnel are considered variable costs.

Question 14

A penetration price strategy is most practical when there is a low threat of short-term competition in the market or when startup costs must be recovered rapidly.

Question 15

Price lining refers to the systematic determination of the right price for a product or service.

Question 16

Break-even analysis begins by determining what sales level is needed to generate a profit.

Question 17

Under certain conditions, pricing at less than total costs can make sense as a short-term strategy.

Question 18

Markup rates should be high enough to cover a product's cost, other expenses, any price reductions, and profit.

Question 19

Setting a price for a product or sercvice is as much art as science.

Question 20

In conducting a comprehensive break-even analysis, a firm must examine both its revenue-cost relationships and sales forecasts.

Question 21

Sellers often decide to offer credit to borrowers because it helps with the exchange of purchased items.

Question 22

An important source of credit information is the customer's previous credit history.

Question 23

Every applicant is credit worthy to some degree.

Question 24

As the result of a 2012 court case, retailers may now add a surcharge to customers' bills for using a credit card.

Question 25

A revolving charge account would be typical for larger purchases; smaller purchases are typical on installment accounts.

Question 26

American Express and Diner's Club are examples of entertainment credit cards.

Question 27

Under certain circumstances, local, state, and federal laws must be considered in setting prices in a small business.

Question 28

In today's competitive environment, a cash-only seller will outsell a credit selling competitor.

Question 29

One of the benefits of extending credit to borrowers is that doing so provides better records of purchases on credit billing statements.

Question 30

For installment selling, the amount of credit should not exceed the repossession value of the goods sold.

Question 31

Collateral is generally required for open charge accounts.

Question 32

Because it is a standard practice for many business types, selling on credit cannot often be avoided.

Question 33

If a small business has products that compete with one another, pricing decisions must take into account the effects of a single product price on the rest of the line.

Question 34

Bank credit cards are widely accepted by retailers who desire to offer credit but do not have their own credit cards.

Question 35

Home-based businesses will find it easy to obtain merchant status with credit card companies.

Question 36

An installment account is a typical trade credit agreement.

Question 37

In many lines of business, trade credit terms are so firmly set by tradition that a unique policy is difficult for a small firm to implement.

Question 38

Credit cards are an alternative to cash.

Question 39

Pricing based on what the market will bear works only for non-standardized products in markets where there is low competition.

Question 40

Trade credit is extended to consumers purchasing large volumes of products.

Question 41

Hollywood Amusement, a small independent movie theater, decreased the price of admission from $10 to $9. Prior to the price decrease, the business sold 1,000 tickets each month. After the price decrease, it experienced ticket sales of 1,500 a month. If the change in sales is attributable only to the change in price, Hollywood Amusement faces ____ for its movie tickets.

A) elastic demand
B) constant demand
C) inelastic demand
D) variable demand

Question 42

Commissions paid to a salesperson would be included in

A) cost of goods sold.
B) human resources.
C) overhead costs.
D) administrative costs.

Question 43

The aging schedule is a categorization of accounts receivable based on the length of time they have been outstanding.

Question 44

The seller's measure of what he or she is willing to receive in exchange for transferring ownership or use of a product or service is

A) credit.
B) average pricing.
C) demand.
D) price.

Question 45

In general, products that are consumed in fixed amounts have

A) constant demand.
B) elastic demand.
C) inelastic demand.
D) variable demand.

Question 46

Active Feet, a small manufacturer of shoes, hired an additional vice-president and purchased a barrel of synthetic rubber used to make shoe soles. These two expenses should be considered a(n) ____ and a(n) ____, respectively.

A) selling cost/cost of goods sold
B) overhead cost/cost of goods sold
C) selling cost/overhead cost
D) overhead cost/selling cost

Question 47

The difference between the unit selling price and the unit variable costs and expenses is known as the

A) average price.
B) elasticity.
C) contribution margin.
D) break-even point.

Question 48

The primary purposes of the Equal Credit Opportunity Act are to inform consumers about terms of a credit agreement and to require creditors to specify how finance charges are computed.

Question 49

The bad-debt ratio is the ratio of bad debts to total sales.

Question 50

The Consumer Credit Protection Act requires that the finance charge for credit be stated as an annual percentage rate and that creditors specify the procedures used for correcting billing mistakes.

Question 51

The total sales revenue of a small business is a direct reflection of

A) sales volume and credit terms.
B) price and credit terms.
C) price and expenses.
D) sales volume and price.

Question 52

If the owner of Clarrisa's Fine Jewelry instructed the sales team to stress the uniqueness of the store's hand designed jewelry, a  ____ pricing strategy would be expected.

A) skimming
B) prestige
C) follow-the-leader
D) dynamic

Question 53

Trade-credit agencies collect credit information on business firms and consumers in a given area.

Question 54

Credit bureaus maintain credit histories on individuals based on information reported to them by banks, mortgage companies, department stores, and other creditors.

Question 55

To ensure prompt payment, a business extending credit should have adequate billing records and collection procedures.

Question 56

A business will not be successful unless it charges a price for its products that covers its total

A) cost and a margin of profit.
B) cost of goods and selling cost.
C) fixed cost and overhead cost.
D) variable cost and cost of goods.

Question 57

Diamonds and other jewels often carry a high price to convey an image of high quality or uniqueness.  This type of pricing is known as

A) skimming pricing.
B) penetration pricing.
C) variable pricing.
D) prestige pricing.

Question 58

Markup pricing may be expressed in terms of a percentage of either the ____ or the cost.

A) quantity
B) operating expenses
C) selling price
D) estimated expenses

Question 59

Beverly is systematically comparing various cost and revenue estimates in order to determine the acceptability of alternative prices.  Beverly is using:

A) break-even analysis
B) price lining
C) cost functioning
D) demand functioning

Question 60

A comprehensive break-even analysis entails

A) examining revenue-cost relationships and establishing sales forecasts.
B) analyzing marketing strategy's effect on revenue and costs.
C) the use of comparison pricing and contribution margins.
D) approximating debits, credits, costs and sales.

Question 61

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.

Question 62

Buying on credit  ____ the amount of working capital needed by the business doing the buying.

A) augments
B) decreases
C) increases
D) offsets

Question 63

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

Question 64

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.

Question 65

Fine Framings, a small framing shop, uses markup pricing to arrive at a final selling price. The firm sells its frames at a price of $25, given a $15 unit cost. Fine Framings' markup on the selling price is ____, and its markup on cost is ____.

A) 66-2/3%, 40%
B) 40%, 66-2/3%
C) 167%, 67%
D) 250%, 100%

Question 66

Which "C" defines the customer's asset conservation?

A) Capacity
B) Character
C) Collateral
D) Conditions

Question 67

Chocolate Concoctions, a maker of high end chocolate candies, decided to price its boxes of candies below the long-term market price. The decision was made to increase market share and discourage other firms from entering the chocolate market. Chocolate Concoctions was implementing a

A) penetration pricing strategy.
B) price lining strategy.
C) skimming price strategy.
D) variable pricing strategy.

Question 68

Troy Bourbon, a local bourbon distillery, initially sold its product at a premium price of $45 because the company believed consumers would view the bourbon as a prestige item. The company decided that when startup costs had been fully recovered and competition became imminent, the company would reduce the price to $30 which was more expected in the market.  The distillery is using a

A) variable pricing strategy.
B) skimming price strategy.
C) price lining strategy.
D) penetration pricing strategy.

Question 69

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.

Question 70

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

Question 71

The Golf Global Company sells 1,000 shirts annually at a price of $35 each. If the company's pricing policies adhere to a 40% markup of selling price, the cost of each shirt is

A) $14.
B) $21.
C) $28.
D) $32.

Question 72

Within the framework of a break-even analysis, an examination of ____ is conducted to determine the quantity at which the product, with an assumed price, will generate enough revenue to start earning a profit.

A) costs
B) revenues
C) sales forecasts
D) costs and revenue

Question 73

Retro Hits, a local band covering songs from the 1980s and 1990s, decided they wanted to expand to more college students.  Research showed students thought the current $25 ticket price was too high for a local band. To strengthen ticket demand, Retro Hits began offering $15 tickets to all fans who checked in on Facebook.  The band was using a

A) variable pricing strategy.
B) price lining strategy.
C) skimming pricing strategy.
D) freemium pricing strategy.

Question 74

Tanya would like to gain market share rapidly so she has priced her product at a lower than normal, logn-range market price.  Which strategy is Tanya using?

A) variable pricing
B) skimming price
C) price lining
D) penetration pricing

Question 75

Tick Tock, a small retailer of a quality alarm clock, sells its product based on a 35% markup of cost. If the firm's product costs are approximately $133, what is the selling price?

A) $138.
B) $198.
C) $180.
D) $289.

Question 76

Lorrie Veasey, owner of All That Swag, used discount coupons for special event items to drive customers to her retail stores.  Using such promotions and stating that "the regular price is never chiseled in stone" would indicate Lorrie is using a

A) variable pricing strategy.
B) price lining strategy.
C) skimming pricing strategy.
D) product line pricing strategy.

Question 77

Demand for a product typically ______ as price ______.

A) decreases, increases
B) decreases, stays the same
C) stays the same, increases
D) increases, decreases

Question 78

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

Question 79

Credit cards are usually based on a(n) ____ account system.

A) installment
B) open charge
C) revolving
D) a selective

Question 80

A business that has a gaming console intended to compete directly with Sony's Playstation gaming console would likely use a ____ pricing strategy.

A) follow-the-leader
B) penetration
C) prestige
D) variable