BA 303 Exam 3 Questions with Correct Answers Graded A+
b. By setting the price before you know the costs, you could lose money on every razor you sell. -
Answers As Vice President of Marketing for Holden-Evan, a highly successful consumer
products company, you have been asked by your superiors to price a new product for the
company, an electric razor. Your first chore is to determine the basis on which you will
determine price.
Before you have a chance to analyze the situation, an advisor from sales tells you that this razor
will never break into a tough market unless it has an absolute rock-bottom price.
Which of the following identifies the best reason for why you should ignore advice to employ a
competitive price approach in which you undercut all competitors?
a. Low-priced razors are often considered "cheap" and don't sell well.
b. By setting the price before you know the costs, you could lose money on every razor you sell.
c. The best way to enter into a tough market is with promotion, not a low price.
d. When buying a durable product like an electric razor, consumers don't pay attention to price.
e. The best way to enter into a tough market is with high quality, not a low price.
e. The price that is set will dramatically decrease demand. - Answers You are considering a cost
-plus pricing method for the razor.
Which of the following identifies the greatest danger in using this pricing method?
a. The price that is set will increase demand dramatically.
b. The price that is set will be too low.
c. The price that is set will fail to factor in fixed costs.
d. The price that is set will be variable and unstable.
e. The price that is set will dramatically decrease demand.
a. Break-even pricing computes a price that simply offsets costs without actually generating a
profit. - Answers Another pricing method you are considering is break-even pricing. With this
method, you compute how many units you will need to sell at a given price to break even. Your
VP of Finance, who is focused on profits, is against using this method to set the price.
Which of the following best explains why the VP of Finance is against break-even pricing?
,a. Break-even pricing computes a price that simply offsets costs without actually generating a
profit.
b. Break-even pricing is risky and unpredictable.
c. Break-even pricing works only when demand is very high.
d. Break-even pricing does not consider how the price of the product can increase or decrease
demand.
e. Break-even pricing works only when demand is very low and you want to generate enthusiasm
for your product.
c. Lower the break-even point and keep the price, costs, and sales steady. - Answers Using
break-even pricing, suppose your revenue estimate falls short of the break-even point.
Which of the following modifications will not result in reaching the break-even point?
a. Raise the price to increase revenue and keep sales, costs, and the break-even point steady.
b. Lower the price to increase sales, and keep costs and the break-even point steady.
c. Lower the break-even point and keep the price, costs, and sales steady.
d. Lower costs and keep the price, sales, and the break-even point steady.
e. Raise both the price and sales, but keep costs steady.
d. Target profit pricing sets a price that will generate revenue above the break-even point so a
profit can be achieved. - Answers Rather than break-even pricing, you are considering setting
your price using the target profit approach.
Which of the following best explains why target profit pricing is an improvement over break-
even pricing?
a. Target profit pricing is the only method that takes into account how a price can influence
demand.
b. Target profit pricing completely ignores how a price can influence demand.
c. Target profit pricing sets an ideal price that reflects the best possible outcome for your
product.
d. Target profit pricing sets a price that will generate revenue above the break-even point so a
profit can be achieved.
e. Target profit pricing lowers costs well below the break-even point so a large profit is
guaranteed.
,b. a less expensive model that has features that are similar to the name brand product -
Answers Another option you are considering is a value-based approach using good-value pricing.
Which of the following accurately describes a good-value pricing approach?
a. a less expensive model that has fewer features than the name brand product
b. a less expensive model that has features that are similar to the name brand product
c. a less expensive model that has more features than the name brand product
d. a deluxe model that has better features and a higher price than the name brand product
e. a deluxe model that has better features and a much lower price than the name brand product
e. a 3G smart phone with all standard features and a few very exciting extra features at a price
that is higher than the industry standard - Answers Another value-based approach is value-
added pricing.
Which of the following products is using a value-added pricing approach?
a. the industry leader: a 3G smart phone with all of the standard features at a medium-level price
b. a 3G smart phone with all of the standard features at a price that is lower than the industry
standard
c. a 3G smart phone that works well and has most, but not all of the standard features at a price
that is lower than the industry standard
d. a 3G smart phone with all standard features and a few unexciting extra features at a price
that is the same as the industry standard
e. a 3G smart phone with all standard features and a few very exciting extra features at a price
that is higher than the industry standard
e. between $48 and $50 - Answers Your current estimates for the razor list $555,000 in fixed
costs and $29 per unit in variable costs. Previously, expected sales for the unit were 50,000.
New data suggests expected sales of 70,000 units.
To obtain a 15 percent profit, what price range should you set?
a. between $43 and $44
b. between $47 and $48
c. between $32 and $35
d. between $40 and $42
, e. between $48 and $50
b. To sell 135,000 units, you would need to charge more than $30 per unit. - Answers The
estimated demand for various prices for the razor are listed below. Your colleague suggests a
break-even price of about $30.
PRICE EXPECTED DEMAND
$30 135,000
$35 92,500
$40 60,500
$45 50,000
$50 41,500
$55 20,000
Which of the following best explains why a break-even price of $30 is incorrect?
a. At a price of $30 per unit, it is not possible to sell 135,000 units.
b. To sell 135,000 units, you would need to charge more than $30 per unit.
c. To sell 135,000 units, you could charge less than $30 per unit.
d. To sell 135,000 units, you would need to exactly $30 per unit.
e. To sell 135,000 units, you would need to charge over $40 per unit.
c. To generate enough revenue to make a $316,000 profit, you would need to raise the price to
over $70 per unit. - Answers A different colleague wants to charge a premium price for the razor.
To make a profit of $316,000 he suggests that you price the razor at the highest possible price,
$55, and expect sales of 20,000 units.
PRICE EXPECTED DEMAND
$30 135,000
$35 92,500
$40 60,500
$45 50,000
b. By setting the price before you know the costs, you could lose money on every razor you sell. -
Answers As Vice President of Marketing for Holden-Evan, a highly successful consumer
products company, you have been asked by your superiors to price a new product for the
company, an electric razor. Your first chore is to determine the basis on which you will
determine price.
Before you have a chance to analyze the situation, an advisor from sales tells you that this razor
will never break into a tough market unless it has an absolute rock-bottom price.
Which of the following identifies the best reason for why you should ignore advice to employ a
competitive price approach in which you undercut all competitors?
a. Low-priced razors are often considered "cheap" and don't sell well.
b. By setting the price before you know the costs, you could lose money on every razor you sell.
c. The best way to enter into a tough market is with promotion, not a low price.
d. When buying a durable product like an electric razor, consumers don't pay attention to price.
e. The best way to enter into a tough market is with high quality, not a low price.
e. The price that is set will dramatically decrease demand. - Answers You are considering a cost
-plus pricing method for the razor.
Which of the following identifies the greatest danger in using this pricing method?
a. The price that is set will increase demand dramatically.
b. The price that is set will be too low.
c. The price that is set will fail to factor in fixed costs.
d. The price that is set will be variable and unstable.
e. The price that is set will dramatically decrease demand.
a. Break-even pricing computes a price that simply offsets costs without actually generating a
profit. - Answers Another pricing method you are considering is break-even pricing. With this
method, you compute how many units you will need to sell at a given price to break even. Your
VP of Finance, who is focused on profits, is against using this method to set the price.
Which of the following best explains why the VP of Finance is against break-even pricing?
,a. Break-even pricing computes a price that simply offsets costs without actually generating a
profit.
b. Break-even pricing is risky and unpredictable.
c. Break-even pricing works only when demand is very high.
d. Break-even pricing does not consider how the price of the product can increase or decrease
demand.
e. Break-even pricing works only when demand is very low and you want to generate enthusiasm
for your product.
c. Lower the break-even point and keep the price, costs, and sales steady. - Answers Using
break-even pricing, suppose your revenue estimate falls short of the break-even point.
Which of the following modifications will not result in reaching the break-even point?
a. Raise the price to increase revenue and keep sales, costs, and the break-even point steady.
b. Lower the price to increase sales, and keep costs and the break-even point steady.
c. Lower the break-even point and keep the price, costs, and sales steady.
d. Lower costs and keep the price, sales, and the break-even point steady.
e. Raise both the price and sales, but keep costs steady.
d. Target profit pricing sets a price that will generate revenue above the break-even point so a
profit can be achieved. - Answers Rather than break-even pricing, you are considering setting
your price using the target profit approach.
Which of the following best explains why target profit pricing is an improvement over break-
even pricing?
a. Target profit pricing is the only method that takes into account how a price can influence
demand.
b. Target profit pricing completely ignores how a price can influence demand.
c. Target profit pricing sets an ideal price that reflects the best possible outcome for your
product.
d. Target profit pricing sets a price that will generate revenue above the break-even point so a
profit can be achieved.
e. Target profit pricing lowers costs well below the break-even point so a large profit is
guaranteed.
,b. a less expensive model that has features that are similar to the name brand product -
Answers Another option you are considering is a value-based approach using good-value pricing.
Which of the following accurately describes a good-value pricing approach?
a. a less expensive model that has fewer features than the name brand product
b. a less expensive model that has features that are similar to the name brand product
c. a less expensive model that has more features than the name brand product
d. a deluxe model that has better features and a higher price than the name brand product
e. a deluxe model that has better features and a much lower price than the name brand product
e. a 3G smart phone with all standard features and a few very exciting extra features at a price
that is higher than the industry standard - Answers Another value-based approach is value-
added pricing.
Which of the following products is using a value-added pricing approach?
a. the industry leader: a 3G smart phone with all of the standard features at a medium-level price
b. a 3G smart phone with all of the standard features at a price that is lower than the industry
standard
c. a 3G smart phone that works well and has most, but not all of the standard features at a price
that is lower than the industry standard
d. a 3G smart phone with all standard features and a few unexciting extra features at a price
that is the same as the industry standard
e. a 3G smart phone with all standard features and a few very exciting extra features at a price
that is higher than the industry standard
e. between $48 and $50 - Answers Your current estimates for the razor list $555,000 in fixed
costs and $29 per unit in variable costs. Previously, expected sales for the unit were 50,000.
New data suggests expected sales of 70,000 units.
To obtain a 15 percent profit, what price range should you set?
a. between $43 and $44
b. between $47 and $48
c. between $32 and $35
d. between $40 and $42
, e. between $48 and $50
b. To sell 135,000 units, you would need to charge more than $30 per unit. - Answers The
estimated demand for various prices for the razor are listed below. Your colleague suggests a
break-even price of about $30.
PRICE EXPECTED DEMAND
$30 135,000
$35 92,500
$40 60,500
$45 50,000
$50 41,500
$55 20,000
Which of the following best explains why a break-even price of $30 is incorrect?
a. At a price of $30 per unit, it is not possible to sell 135,000 units.
b. To sell 135,000 units, you would need to charge more than $30 per unit.
c. To sell 135,000 units, you could charge less than $30 per unit.
d. To sell 135,000 units, you would need to exactly $30 per unit.
e. To sell 135,000 units, you would need to charge over $40 per unit.
c. To generate enough revenue to make a $316,000 profit, you would need to raise the price to
over $70 per unit. - Answers A different colleague wants to charge a premium price for the razor.
To make a profit of $316,000 he suggests that you price the razor at the highest possible price,
$55, and expect sales of 20,000 units.
PRICE EXPECTED DEMAND
$30 135,000
$35 92,500
$40 60,500
$45 50,000
