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SEM2 3.02 Review
A product’s selling price is
$430 per unit, and the
number of units required to
reach the break-event point
is 2,100. Calculate the total
dollar sales the business
needs to break even.
Answer
$903,000. The break even point is the
point at which income from sales of a
product equals the costs or producing
and/or selling the product. Break-even
in dollars is calculated by multiplying
the number of units that must be sold
to reach break-even by the selling price
per unit (2,100 x $430 = $903,000)
A business purchases a
line of items for resale
that costs $12.32 each.
Expenses total $1.65 per
item. What is the breakeven price per item?
Answer
$13.97. The break-even price is the
price at which the business recovers
the costs and expenses of producing
and distributing a product ($12.32 +
$1.65 = $13.97). The business needs
to know the total expenses involved in
selling a product in order to set a
selling price that will include a profit
margin.
The variable cost for a product
is $3.00 and the total fixed
costs are $288,000. The
company sells the products for
$6.00 each. How many
products will the company
have to sell to break even?
Answer
96,000. Break-even is the point at
which the business has recovered its
costs and can expect to make a profit.
The break-even point is determined by
dividing the difference between variable
costs and the selling price into the total
fixed costs. In this case, $6.00 - $3.00
= $3.00; $288,000 ÷ $3.00 = 96,000.
A business decides to produce
6,000 football cushions and
sell them for $6.00 each. They
cost the company $4.00 each
to produce. How many
cushions must the company
sell to break even?
Answer
4,000. Break-even is the point at which
the business has recovered the costs of
production and can begin to make a
profit. To determine break-even in this
case, multiply the number of cushions
to be produced by the cost to produce
each, then divide by the selling price to
determine how many have to be sold to
break even (6,000 x $4.00 = $24,000
÷ $6.00 = 4,000).
What do sales beyond the
break-even point provide to
a business?
A.
B.
C.
D.
Initial markup
Variable-cost margin
Dividends
Profit
Answer
Profit. The break-even point is the
level of sales at which revenues equal
total costs. Therefore, any revenue
beyond the break-even point is profit.
Variable-cost margin is the amount of
variable costs that apply to one unit.
Dividends are sums of money paid to
investors or stockholders as earnings on
an investment. Initial markup is the
difference between the cost of goods
and their original selling price.
Determine a firm's
break-even point in units,
given the following
information: total fixed
cost, $4,000; variable
cost per unit, $20; and
selling price per unit,
$100.
Answer
50 units. Break-even point is the level
of sales at which revenues equal total
costs. It can be calculated in units or
dollars. The formula for calculating
break-even in units is: Break-even
equals total fixed costs divided by the
variable-cost margin. To determine the
variable-cost margin, subtract the
variable cost per unit from the selling
price ($100 - $20 = $80). Then, divide
the total fixed cost by the variable-cost
margin to determine the break-even
point in units ($4,000 ÷ $80 = 50 units).
A professional football team that
increases ticket prices for next season
because the team is on a winning
streak is selecting a pricing strategy
based on
A.previous winning potential.
B.the number of games played.
C.what the market will bear.
D.the location of the target market.
Answer
What the market will bear. In some situations,
professional football teams raise ticket prices
because they are on a winning streak and many
fans are willing to pay higher prices to attend
games. This is an example of selecting a pricing
strategy based on what the market will bear. If the
team is winning, the market price might be higher
than if the team was losing. This same team might
need to lower prices in the future because the
winning streak ends and fans are no longer willing
to pay high prices to attend games. The team is
not selecting a pricing strategy based on the
number of games played, previous winning
potential, or the location of the target market.
Which of the following is the least
important factor when selecting a
pricing strategy:
A.Promotional strategy
B.Competitor prices
C.Cost of merchandise
D.Location of store
Answer
Location of store. The location of the store
is not an important factor to consider when
selecting a pricing strategy. Competitor
prices are important, however, because
retailers want to price merchandise according
to the competition, either higher or lower
depending on the strategy. Cost of
merchandise is important as well because
retailers must at least cover the cost they
paid for the merchandise in the first place.
Promotional strategy also has an influence on
pricing strategy because all of the elements
of the marketing mix must complement each
other.
If your goal is to avoid storing
or discarding merchandise, what
pricing strategy should you
select?
A.
B.
C.
D.
Competitive
Close out
Cost plus markup
Versioning
Answer
Close out. Close out pricing is a
discounted price intended to move
product off the shelf rather than the
business sustaining a loss from unsold
product. With cost plus markup, prices
are based on how much the retailer
paid for a product plus the retailer's
desired markup. Competitive pricing will
be in line with competitors' prices.
Versioning is a pricing strategy used to
price various versions of a product—
think good, better, best.
Why would an event marketer promote
an upcoming celebrity golf tournament
at an exclusive course as a once-in-alifetime event?
A.To
B.To
C.To
D.To
have expensive media coverage
obtain more industry support
increase advertising costs
generate higher ticket prices
Answer
To generate higher ticket prices. There is a
direct relation between how an event is
promoted, where it is to be held, and the price
that can be charged. Marketers that promote
events as star-studded, exclusive, and rare
often create an image of high quality in the
minds of consumers. Consumers usually are
willing to pay a higher price to attend events
they consider to be prestigious. The purpose of
promoting celebrity events is not to have
expensive media coverage, increase
advertising costs, or obtain more industry
support.
A soccer camp provides five leaders at
$8 per hour for eight hours a day for
five days. If fringe benefits are 20% of
the wages and supplies total $650,
calculate the cost per person if 40
players attend.
Answer
$64.25. To calculate cost per person, first
determine total wages by multiplying the
hourly rate by the number of hours worked
per day and the number of leaders ($8 x 8 =
$64; $64 x 5 = $320). Then, multiply the daily
rate by the number of days ($320 x 5 =
$1,600). To determine fringe benefits, multiply
the total wages by 20% ($1,600 x 20% or .20
= $320). Add fringe benefits to total wages
and the cost of supplies to determine the total
price of the camp ($1,600 + $320 = $1,920;
$1,920 + $650 = $2,570). To calculate cost
per person, divide the total price by 40
($2,570 ÷ 40 = $64.25).
An increase in ticket prices is most
accepted by fans if a sport has a(n)
__________ demand for tickets.
A.inelastic
B.low
C.elastic
D.unitary
Answer
Inelastic. Inelastic demand occurs when changes in
price do not affect demand, which is typical of
football and boxing because fans are usually willing
to pay higher ticket prices. Elastic demand is a form
of demand for products in which changes in price
correspond to changes in demand. For example,
higher ticket prices cause demand for the tickets to
go down, which is typical of both soccer and
wrestling. Unitary demand occurs when changes in
price result in an equal change in demand. For
example, a 10% increase in ticket prices will result
in 10% reduction in demand for tickets. Basketball
and hockey both have unitary demand. A low
demand implies that people are not interested in
buying the tickets to begin with.
When setting ticket prices for
professional baseball games, the
organization considers the team's
performance, which is a(n)
______factor.
A.situational
B.ethical
C.operational
D.developmental
Answer
Situational. A professional baseball organization
must consider many factors when setting prices for
game tickets. One consideration is the team's
performance, which is a situational factor because a
team's circumstances can change at any given time.
For example, if a baseball team loses a star player
due to injuries, starts playing poorly, and loses a lot
of games over a long period of time, the demand for
tickets would likely fall. To increase sales and draw
fans to the stadium, the organization would likely set
the prices low. As the team plays better, obtains star
players, wins more games, and consistently draws
fans to the stadium, the organization might set
prices higher than it did for the previous season. The
team's performance is not an ethical, operational, or
developmental factor.
A sporting event setting ticket prices
based on potential customers' ability to
pay is an example of a price
A.promotion.
B.objective.
C.restriction.
D.motive.
Answer
Objective. A sporting event may establish a
variety of price objectives according to what
the event hopes to achieve. One goal may be
to attract a certain target market. In this
example, the objective is to set a price that is
realistic based on potential customers' ability
to pay. If ticket prices are too high for the
target market, then those people might not
be willing or able to buy tickets. If the price
objective is to sell tickets to a certain group,
then the price must be appealing to that
group. Setting ticket prices based on potential
customers' ability to pay is not an example of
price promotion, price restriction, or price
motive.
A college athletic department sets the
football ticket prices so that the
organization earns income of $12 per
ticket after covering expenses. This is
an example of a price objective based
on
A.demand.
B.competition.
C.profitability.
D.volume.
Answer
Profitability. An objective is a goal or desired
outcome. When setting prices, sport/event
organizations need to make enough money to cover
expenses. Any money that the organization makes
after covering expenses is called profit. A
sport/event organization that sets a goal to earn a
specific amount of revenue after covering its
expenses is basing its prices on profitability.
Competition-based price objectives are set on the
basis of how similar organizations are pricing their
products. Demand-based price objectives are set on
the basis of how many consumers want the tickets.
Volume-based price objectives are set on the basis
of how many tickets that the sport/event
organization wants to sell.
When a hockey team sets its ticket
prices so it can achieve its goal of
increasing its fan base by five percent,
the hockey team is establishing a price
objective in conjunction with a __ goal.
A.licensing
B.cost
C.sales
D.contingency
Answer
Sales. A sales objective is a goal or desired
outcome for sales. When a hockey team wants
to draw five percent more fans to the arena
and sets ticket prices in a way to facilitate
higher ticket sales, the hockey team is
considering its sales goals in conjunction with
its pricing objectives. Cost refers to the
expenses associated with developing and
selling a good or service. Licensing involves a
contractual agreement that allows another
person or business to use the owner's
intellectual property for a specific time for a
certain activity. Contingency refers to
alternative course of action.