Chapter 16 packet notes

Question 1

A specification of what a seller requires in exchange for transferring ownership for use of a product or service.

Answer 1

Price

Question 2

This causes a loss in revenue.

Answer 2

Prices Set too Low

Question 3

This also causes a loss in revenue.

Answer 3

Prices Set too High

Question 4

Related for many goods and services.

Answer 4

Price and Demand

Question 5

An agreement between a buyer and a seller that provides for delayed payment for a product or service.

Answer 5

Credit

Question 6

Quantity sold X price per unit = ____ ______

Answer 6

Gross Revenue

Question 7

1. Cost of goods offered
2. Selling cost
3. Overhead cost

• These three put together equals total cost

Answer 7

The Three Components of Total Cost in Determining Price

Question 8

The sum of cost of goods sold, selling expenses, and overhead costs.

Answer 8

Total Cost

Question 9

Costs that vary with the quantity produced or sold.

Answer 9

Variable Costs

Question 10

Costs that remain constant as the quantity product or sold varies.

Answer 10

Fixed Costs

Question 11

An approach in which total cost for a given period is divided by quantity sold in that period to set a price.

Answer 11

Average Pricing

Question 12

The degree to which a change in price affects the quantity demanded.

• Elastic demand
• Inelastic demand

Answer 12

The Elasticity of Demand

Question 13

Demand that changes significantly when there is a change in the price of the product.

Answer 13

Elastic Demand

Question 14

Demand that does not change significantly when there is a change in price of the product.

Answer 14

Inelastic Demand

Question 15

Customers will pay more for a product or service that they percieve as important to their needs.

Answer 15

Pricing and Competitive Advantage

Question 16

• Setting a high price to convey an image of high quality or uniqueness (competitive advantage)
• Costomers associate price with quality
• Markets with low levels of product knowledge are candidates

Answer 16

Prestige Pricing

Question 17

A comparison of alternative cost and revenue estimates in order to determine the acceptability of each price.

Answer 17

Break-Even Analysis

Question 18

Examining revenue-cost relationships: the quantity at which the product will generate enough revenue to start earning a profit.

Answer 18

Steps in the Break-Even Analysis

Question 19

• Breakeven point
• Contribution Margin

Answer 19

Cost and Revenue Relationships

Question 20

• The sales volume at which total sales revenue equals total costs (fixed and variable).
• The point at which profitability starts and losses cease.

Answer 20

Breakeven Point

Question 21

The difference between the unit selling price and the unit variable costs and expenses- for each unit sold, a contribution is made toward covering the company’s fixed costs.

Answer 21

Contribution Margin

Question 22

• Price has a variable impact and influences demand.
• Adjusting for the indirect effect of price allows for a more realistic profit area to be identified.

Answer 22

Adjusted Breakeven Analysis- Incorporating Sales Forecasts

Question 23

Cost plus pricing system that adds a markup percentage to cover:

• Operating expenses
• Subsequent price reductions
• Desired profit

Answer 23

Markup Pricing

Question 24

Markup divided by selling price times 100 =

Answer 24

Markup as Percentage of Selling Price

Question 25

Markup divided by cost times 100 =

Answer 25

Markup as Percentage of Cost

Question 26

* Penetration pricing * Skimming pricing * Variable pricing * Price lining * What the market will bear * Dynamic pricing * Follow-the-leader pricing

Answer 26

Pricing Strategies

Question 27

Selling lower than normal prices to hasten market acceptance of a produce or service or to increase market share.

Answer 27

Penetration Pricing

Question 28

Setting very high prices for a limited period before reducing them to more competitive levels.

Answer 28

Skimming Pricing

Question 29

Setting more than one price for a good or service in order to offer price concessions to certain customers.

Answer 29

Variable Pricing

Question 30

Setting a range of serveral different merchandise price levels.

Answer 30

Price Lining

Question 31

A strategy for charging the highest prices that customers will pay; used only when the seller has little or no competition.

Answer 31

What the Market Will Bear

Question 32

Charging more than one price when the customer's profile suggests that the higher price will be accepted.

Answer 32

Dynamic Pricing

Question 33

Using a particular competitor as a model in setting prices.

Answer 33

Follow-the-Leader Pricing

Question 34

* Consider local, state, and federal laws when setting prices: The Sherman Antitrust Act generally prohibits competitors from conspiring to fix prices. * The effect of the introduction of new products into an established product line. * Offering discounts to match the needs of customers. * If the initial price appears to be off target, make any necessary adjustments and keep on selling.

Answer 34

Setting Prices: Controls and Situations

Question 35

* Provides working capital * Ability to satisfy immediate needs and pay later * Better records of purchases on credit billing * Better service and greater convenience when exchanging purchased items. * Establishment of credit history

Answer 35

Benefits of Credit to Borrowers

Question 36

* Facilitates increased sales volume. * Brings a closer association with customers. * Fosters easier selling through telephone, mail and internet * Helps smooth sales demand since purchasing power is always available. * Provides easy access to a tool with which to stay competitive.

Answer 36

Benefits of Credit to Sellers

Question 37

* Type of business * Credit policies of competitors * Competitors re expected to match other competitors' credit offerings. * Income level of customers * Availability of working capital * Credit sales increase the amount of working capital

Answer 37

Factors that Affect Selling on Credit

Question 38

1. Consumer credit 2. Trade credit

Answer 38

Types of Credit (Two Broad Classes of Credit)

Question 39

Financing granted by retailers to individuals who purchase for personal or family use.

Answer 39

Consumer Credit (Firms Selling to Other Businesses)

Question 40

Financing provided by a supplier of inventory to a given company which sets up an account payable for the amount.

Answer 40

Trade Credit

Question 41

Two percent discount on the invoiced amount if paid in full within 10 days of the invoice date, otherwise the full amount of the invoice is due in 30 days.

Answer 41

²/₁₀, net 30

Question 42

* Open charge account * Installment account * Revolving charge account

Answer 42

Types of Consumer Credit Accounts

Question 43

A line of credit that allows the customer to obtain a product at the time of purchase.

Answer 43

Open Charge Account

Question 44

A line of credit that requires a down payment, with the balance paid over a specified period of time.

Answer 44

Installment Account

Question 45

A line of credit on which the customer may charge purchases at any time, up to a pre-established limit.

Answer 45

Revolving Charge Account

Question 46

* Bank Credit Cards * Entertainment Credit Cards * Retailer Credit Cards

Answer 46

Types of Credit Cards (3 Basic Types)

Question 47

Credit cards issued by banks that are widely accepted by retailers who pay a fee to the banks for handling their credit transactions.

Answer 47

Bank Credit Cards

Question 48

Business credit cards originally used to purchase services, now widely accepted for merchandise.

Answer 48

Entertainment Credit Cards

Question 49

Credit cards issued by firms for specific use in their outlets or for purchasing their products or services.

Answer 49

Retailer Credit Cards

Question 50

* Can the buyer pay as promised? * Will the buyer pay? * If so, when will the buyer pay? * If not, can the buyer be forced to pay?

Answer 50

Evaluation of Credit Applicants

Question 51

1. Character 2. Capital 3. Capacity 4. Conditions 5. Collateral

Answer 51

The Traditional Five C's of Credit

Question 52

A categorization of accounts receivable based on the length of time they have been outstanding.

Answer 52

Aging Schedule

Question 53

* Timely notification * Warning consumers that they may do damage to their credit if they fail to pay. * Bad debt ratio

Answer 53

Billing and Collection Procedures

Question 54

One of the most effective collection methods for keeping bills current.

Answer 54

Timely Notification

Question 55

A number obtained by dividing the amount of bad debts by the total amount of credit sales.

Answer 55

Bad Debt Ratio