25 Questions
What is the basis of market-based pricing approach?
Customer demand and competitor reaction
What is the primary objective of cost-based pricing approach?
To recoup production costs and achieve a required rate of return
What is the main purpose of using ABC costing in product profitability analysis?
To identify profitable and unprofitable products
What is the relationship between product profitability and pricing strategy?
Higher product profitability leads to higher prices
What is a key difference between market-based and cost-based pricing approaches?
The basis for determining the price
What is the primary factor that influences a company's pricing decision?
Demand and supply
Why do companies consider fixed costs when making long-run pricing decisions?
Because they can be altered in the long run
What is the primary basis for determining a target price?
Customers' perceived value
What happens to profit margins when demand is strong?
They are increased
What is the target cost?
The long-run cost per unit that achieves a target margin
Why do companies consider competitor prices when pricing a product?
To provide a benchmark for setting prices
What is the first step in developing target prices and target costs?
Develop a product that satisfies customer needs
What is the main difference between short-run and long-run costs?
Fixed costs are irrelevant in short-run decisions
What is the purpose of value engineering?
To achieve target cost
How many steps are involved in developing target prices and target costs?
5
What is the primary reason for understanding customers and competitors?
To respond to the continually changing market environment
What is the impact of products being on the market for shorter periods of time?
It leaves less time to recover from pricing mistakes and lost market share
What is the main objective of value engineering?
To reduce costs while improving quality and satisfying customer needs
What is the role of value-analysis teams in value engineering?
To evaluate the impact of design innovations on all business functions of the value chain
What is the main expectation of customers in today's market?
They want higher quality products at lower prices
What is the general formula for cost-based pricing?
Cost base plus markup
What is the purpose of the markup in cost-based pricing?
To set the selling price
What is the result of adding a 65% markup to a product cost of $483.00?
$796.95
What is the selling price of a product with a variable manufacturing cost of $540.00 and a 50% markup?
$810.00
What is the selling price of a product with a cost of $720.00 and a 12% markup?
$806.40
Learn how companies determine prices based on demand and supply. This quiz covers the three key influences on demand and supply, including customer preferences, competitors, and costs. Test your knowledge of pricing strategies and how they impact business decisions.
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