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 break-even 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. Initial markup B. Variable-cost margin

C. DividendsD. 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.

Answer50 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 onA. 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 merchandiseD. 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. Competitive B. Close out C. Cost plus markupD. 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-a-lifetime event?

A. To have expensive media coverage

B. To obtain more industry supportC. To increase advertising costsD. To 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. elasticD. 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. operationalD. 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 onA. 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. salesD. 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.