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Exam 20: Price Setting in the Business World

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Question 1

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With bid pricing,it is best for the bidder to use the same overhead and profit rates on all jobs since that will make it easy to estimate costs and eventually will increase profits.

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Question 2

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A low stockturn rate

A) is extremely good for profits.
B) decreases inventory carrying cost.
C) ties up working capital.
D) is usually linked with very low markups.
E) is typical of fresh fruits and vegetables.

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Question 3

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In a typical break-even analysis,a firm's fixed-cost contribution per unit ______.

The sum of those changing expenses which are closely related to output is called:

When CenturyLink attracts residential customers by setting one monthly fee for high-speed Internet,cable TV,and long-distance phone services that is $40 less than the price of purchasing these three services separately,this is an example of ______.

Use this information for question 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,only uses 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 of its baseball gloves at $20,$40,or $60-with no prices in between.There are three big bins - one for each price point. Todd 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. Todd is not certain if Sports Depot 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,if Sports Depot sells the racquet at a lower than normal price other retailers might decide to carry it. The pricing approach Sports Depot uses to price its baseball gloves is called:

A producer makes an item for $32 and sells it with a 50 percent markup to a wholesaler.The wholesaler then applies a 20 percent markup.A retailer then uses a 60 percent markup.The final retail selling price is:

A tire retailer is advertising a very low price on a popular size tire.When a customer comes into the store,the clerk says the low-priced item is sold out,and tries to convince the customer to buy the top-of-the-line model-claiming the low priced model is not a very good buy even at the low price.This is an example of:

Bid pricing is offering a specific price for each possible job,rather than setting a price that applies to all potential customers.

Walgreens Drugstores advertises that its Tylenol prices are "the lowest in town" in order to stimulate sales of other products along with Tylenol.This is an example of ______.

A high stockturn rate:

Value in use pricing

_____ are costs that a customer faces by buying a product that is different from what has been purchased or used in the past.

Which of the following would NOT be included in a firm's total variable cost?

The price per unit is $1.00.The average variable cost per unit is 60 cents.The total fixed cost is $20,000.Compute the break-even point.

Regarding markups and turnover:

Different firms in the same line of business are likely to use the same markup percent:

If a retailer's annual stockturn rate shifted to 20 from 5,then selling products costing $100,000 would require ______________ rather than $20,000 in working capital to carry the needed inventory.

If a retailer adds a 25-cent markup to a product which costs the retailer $1.00,then according to the text the retailer's markup is 20 percent.

Most retailers and wholesalers set prices by using a different markup percent for each different product carried.