pricing-quiz

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Using his current method and price (shown below) for cleaning carpets what is Rob’s unit cost if he cleans 90 carpets?

Price to clean a carpet = $75
Materials (variable costs) = $15
Monthly fixed costs = $4000

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Question 1 options:

2)

58.66

3)

60.61

4)

67.00

5)

none of these

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Question 2 (5 points)

Question 2 Unsaved

Kevin and Sarah want to determine if their business is elastic or inelastic and by how much. They have done some research and determined demand at their current price and at a proposed new price. What is the coefficient of elasticity for their meal service based on these projections?

Current price = $200 per week
Proposed new price = $250 per week

Current demand = 300 customers a week
Demand at the new price = 240 customers a week

The formula for calculating elasticity is:

Ed = {(Q1-Q2) / [1/2 (Q1+Q2)] } / {(P1-P2) / [1/2 (P1 + P2)]}

Where:

Q1 = Old Quantity – this is the current quantity
Q2 = New Quantity – this is the quantity that results from the future or proposed price change

P1 = Old Price – this is usually the current price
P2 = New Price – this is the price that will change in the future or the price that is being proposed

Question 2 options:

2)

1.1

3)

.01

4)

2.1

5)

1

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Question 3 (5 points)

Question 3 Unsaved

Kevin’s friend, Sam, runs a septic tank repair business. Your research shows that the following price and demand for servicing a tank:

Current Price: $300
New Price: $375

Current demand: 450 tanks
New demand 425 tanks

What is the coefficient of elasticity for Sam’s business?

Here is the formula for calculating elasticity:

Ed = {(Q1-Q2) / [1/2 (Q1+Q2)] } / {(P1-P2) / [1/2 (P1 + P2)]}

Question 3 options:

2)

.337

3)

.75

4)

.256

5)

1

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Question 4 (5 points)

Question 4 Unsaved

Which of these is most likely to be inelastic?

Question 4 options:

Movie theatre

A gourmet restaurant

Hand crafted beer

Designer clothes for kids

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Question 5 (5 points)

Question 5 Unsaved

Rob is considering investing in a new method of cleaning carpets that will cost him more both in fixed and variable costs, but will allow him to charge more. He wants to know what his total sales will be for both his current method and the new method at his breakeven point. You will need to calculate his BEv for both methods first and then determine his total sales for BOTH to give him the information he needs. Be sure you round UP to the nearest whole carpet.

Remember the current has these factors:

Price to clean a carpet = $75
Materials (variable costs) = $15
Monthly fixed costs = $4000

The new method has these factors:

Fixed costs: $4750
Variable costs per carpet: 18.50
Price per carpet: $99

What are Rob’s sales for the current method AND the new method, in that order?

Question 5 options:

2)

$5025 and $5950

3)

$5025 and $5841

4)

$5005 and $5775

5)

There is not enough information to determine this

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Question 6 (5 points)

Question 6 Unsaved

Kevin and Sarah are working on pricing for their gourmet dinner home delivery business. Even though they are targeting affluent families, they know that price is important to their potential customers. Kevin is a great cook but has little training in economics or accounting and knows nothing about elasticity. He looked up elasticity on Google and found the following. Which of them is not true?

Question 6 options:

2)

Elasticity is calculated using the percent of change in demand (quantity) compared to the percent of change in price.

3)

If the coefficient of elasticity is greater than 1 then the product is inelastic

4)

All of these are accurate

5)

Only A and B are accurate

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Question 7 (5 points)

Question 7 Unsaved

What is the unit contribution of each carpet that Rob cleans?

Question 7 options:

2)

$60

3)

$9

4)

$75

5)

none of these is correct

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Question 8 (5 points)

Question 8 Unsaved

Kevin and Sarah know exactly what their costs are to make and deliver the meals to each customer. They are considering using cost plus pricing since it is easy to determine profitability. What is wrong with them using this pricing strategy?

Question 8 options:

2)

Consumers are indifferent to their costs

3)

The cost of food, gas and labor are unpredictable

4)

It ignores the value of how consumers perceive a premium exclusive product

5)

Answers B and D

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Question 9 (5 points)

Question 9 Unsaved

Ally has promised Kat that she will get the same $3 per dozen commission regardless of what price the cookies sell for. This makes Ally’s new costs look like this:

Initial investment: $450
Fixed costs: $375
Variable costs: $3 (per dozen)
Commission; $3 (per dozen)

Ally is curious about what price she needs to charge to get a 60% Return on Investment (ROI) including her variable costs, initial investment and fixed costs. What price will she need to charge for a 60% ROI? For this calculation Ally is assuming sales of 900 dozen (900 units). Pay close attention to the investment and unit cost figures.

This was covered in Module 6 and the formula is:

FORMULA: ROI PRICE = UNIT COST + (ROI x INVESTMENT) / UNIT SALES

HINT: Make sure you include all of Ally’s expenses in the right category

Question 9 options:

2)

3.72

3)

3.90

4)

4.21

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Question 10 (5 points)

Question 10 Unsaved

Bill runs a landscape business and expects a busy holiday season as people spruce up their lawns for the season. He is thinking about adjusting his price, but needs to determine his gross margin if he does so. His poinsettia supplier has offered him a deal. Based on the information below what will his GM and total revenue (sales) be if he lowers his price.

Price now: $250
Holiday special: $200
Cost now $115
New cost $105

Volume if he keeps his current price 210 yards
Volume with the holiday special 245 yards

Question 10 options:

44.5; $47, 495

47.5%; $49,000

48%; $49,900

47.5%; $23, 100

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Question 11 (5 points)

Question 11 Unsaved

Incredible Games (IG) is introducing Galactic Invasion, in which aliens from the Planet Meepzorp attack earth in hopes of capturing millions of college students to take back home to develop social media applications. IG wants to attract lots of new players very quickly and build a growing revenue stream as they become hooked on the game. What pricing strategy do you suggest they use to entrap millions of humans?

Question 11 options:

2)

Freemium

3)

Skimming

4)

Perceived value

5)

Premium

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Question 12 (5 points)

Question 12 Unsaved

Hot Socks, the latest trend in footwear, has fixed costs of $250,000 and a unit variable cost of $6. The retail price of a pair of socks is $15. How many units do they need to sell to break even?

Question 12 options:

27,700

27,600

27,777

26,486

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Question 13 (5 points)

Question 13 Unsaved

Rob is expecting a busy holiday season and is trying to decide if he should buy the new equipment. He is projecting that he will clean 7 carpets a day and work 38 days during the holiday. If he is correct about these projections what are his gross margins for the two methods? In your answer, list the current first and then the new GM (i.e. current/new).

Remember that gross margins compare price and gross profits and is calculated as:

FORMULA = SELLING PRICE – VC
_____________________
SELLING PRICE

Current:
Price to clean a carpet = $75
Materials (variable costs) = $15
Monthly fixed costs = $4000

New:
Fixed costs: $4750
Variable costs per carpet: 18.50
Price per carpet: $99

Question 13 options:

2)

They are the same for both methods

3)

80% and 81%

4)

81.2% and 83.1%

5)

There is missing information

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Question 14 (5 points)

Question 14 Unsaved

Kevin and Becky are getting ready to open their new boutique olive oil and vinegar shop. The neighborhood they in has a couple of well-established competitors. To get off to a good start, they need to build a customer base very quickly and are willing to sacrifice some margin to do so. What pricing strategy should they use?

Question 14 options:

Cost plus

Value based

Freemium

Market penetration

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Question 15 (5 points)

Question 15 Unsaved

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

Question 15 options:

It helps firms minimize overhead expense

It uses variable costs, fixed costs and unit price

It makes it easy to determine stockholder dividend

It is required by IRS regulations

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Question 16 (5 points)

Question 16 Unsaved

Which of the following is NOT a variable in calculating the break-even point?

Question 16 options:

Overhead costs

Variable costs

Retailer margins

Unite price

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Question 17 (5 points)

Question 17 Unsaved

The break-even volume is the point at which __________.

Question 17 options:

elasticity ceases to be a concern for the firm

The firm has covered its marketing budget for the year

The firm has sold enough units to cover all its costs

The firm exceeds the expected sales for the year

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Question 18 (5 points)

Question 18 Unsaved

What is the gross profit for all the cookies she sold?

Question 18 options:

2)

$1960

3)

$2568

4)

$1926

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5)

$642