Pricing Strategies: Influences on Demand and Supply

Play an AI-generated podcast conversation about this lesson

What is the basis of market-based pricing approach?

Customer demand and competitor reaction (correct)
Rate of return on investment
Cost of production
Product profitability

What is the primary objective of cost-based pricing approach?

To reduce production costs
To recoup production costs and achieve a required rate of return (correct)
To increase market share
To maximize profit

What is the main purpose of using ABC costing in product profitability analysis?

To calculate the cost of production
To identify profitable and unprofitable products (correct)
To compare product prices with competitors
To determine the selling price of a product

What is the relationship between product profitability and pricing strategy?

Higher product profitability leads to higher prices (B) Signup and view all the answers

What is a key difference between market-based and cost-based pricing approaches?

The basis for determining the price (D) Signup and view all the answers

What is the primary factor that influences a company's pricing decision?

Demand and supply (B) Signup and view all the answers

Why do companies consider fixed costs when making long-run pricing decisions?

Because they can be altered in the long run (D) Signup and view all the answers

What is the primary basis for determining a target price?

Customers' perceived value (A) Signup and view all the answers

What happens to profit margins when demand is strong?

They are increased (C) Signup and view all the answers

What is the target cost?

The long-run cost per unit that achieves a target margin (C) Signup and view all the answers

Why do companies consider competitor prices when pricing a product?

To provide a benchmark for setting prices (D) Signup and view all the answers

What is the first step in developing target prices and target costs?

Develop a product that satisfies customer needs (D) Signup and view all the answers

What is the main difference between short-run and long-run costs?

Fixed costs are irrelevant in short-run decisions (B) Signup and view all the answers

What is the purpose of value engineering?

To achieve target cost (A) Signup and view all the answers

How many steps are involved in developing target prices and target costs?

5 (B) Signup and view all the answers

What is the primary reason for understanding customers and competitors?

To respond to the continually changing market environment (C) Signup and view all the answers

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 (B) Signup and view all the answers

What is the main objective of value engineering?

To reduce costs while improving quality and satisfying customer needs (B) Signup and view all the answers

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 (C) Signup and view all the answers

What is the main expectation of customers in today's market?

They want higher quality products at lower prices (B) Signup and view all the answers

What is the general formula for cost-based pricing?

Cost base plus markup (C) Signup and view all the answers

What is the purpose of the markup in cost-based pricing?

To set the selling price (B) Signup and view all the answers

What is the result of adding a 65% markup to a product cost of $483.00?

$796.95 (C) Signup and view all the answers

What is the selling price of a product with a variable manufacturing cost of $540.00 and a 50% markup?

$810.00 (A) Signup and view all the answers

What is the selling price of a product with a cost of $720.00 and a 12% markup?

$806.40 (D) Signup and view all the answers