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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Order Paper NowQuestion 2 (5 points)
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 3 (5 points)
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 4 (5 points)
Which of these is most likely to be inelastic?
Question 5 (5 points)
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 6 (5 points)
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 7 (5 points)
What is the unit contribution of each carpet that Rob cleans?
Question 8 (5 points)
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 9 (5 points)
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 10 (5 points)
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 11 (5 points)
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 12 (5 points)
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 13 (5 points)
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 14 (5 points)
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 15 (5 points)
Which of the following statements about break-even analysis is true?
Question 16 (5 points)
Which of the following is NOT a variable in calculating the break-even point?
Question 17 (5 points)
The break-even volume is the point at which __________.
Question 18 (5 points)
What is the gross profit for all the cookies she sold?