Ch. 16 Pricing and Credit Decisions

Question 1

The most significant piece of credit legislation; consumers are informed about the terms of a credit agreement and to require creditors to specify how finance charges are computed. The act requires that a finance charge be stated as an annual percentage rate and that creditors specify their procedures for correcting billing mistakes.

Answer 1

The federal Consumer Credit Protection Act, which includes the 1968 Truth-in-Lending Act

Question 2

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

Answer 2

aging schedule

Question 3

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

Answer 3

average pricing

Question 4

Bad debts divided by credit sales.

Answer 4

bad-debt ratio

Question 5

Analysis that requires the examination of cost-revenue relationships and the incorporation of sales forecasts.

Answer 5

break-even analysis

Question 6

Sales volume at which total sales revenue equals total costs and expenses.

Answer 6

break-even point

Question 7

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

Answer 7

consumer credit

Question 8

The difference between the unit selling price and the unit variable costs and expenses.

Answer 8

contribution margin

Question 9

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

Answer 9

credit

Question 10

Privately owned organizations that summarize different firms’ credit experiences with individual consumers.

Answer 10

credit bureaus

Question 11

An alternative to cash whose use provides assurance to a seller that a buyer has a satisfactory credit rating and that payment will be received from the issuing financial institution.

Answer 11

credit card

Question 12

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

Answer 12

elastic demand

Question 13

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

Answer 13

elasticity of demand

Question 14

A technique that uses a particular competitor as a model in setting prices.

Answer 14

follow-the-leader pricing strategy

Question 15

A strategy that offers customers basic features at no cost based on the idea that they will upgrade to advanced products or services at subscription prices.

Answer 15

freemium strategy

Question 16

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

Answer 16

inelastic demand

Question 17

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

Answer 17

installment account

Question 18

An approach based on setting a high price to convey an image of high quality or uniqueness.

Answer 18

prestige pricing

Question 19

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

Answer 19

price

Question 20

A technique that sets a range of several distinct merchandise price levels.

Answer 20

price line strategy

Question 21

A technique that sets very high prices for a limited period before reducing them to more competitive levels.

Answer 21

price skimming strategy

Question 22

A technique that places different prices on a range of products or services to reflect the benefits to the customer of parts of the range.

Answer 22

product line pricing

Question 23

A line of credit on which the customer may charge purchases at any time, up to a pre-established limit, and must pay a percentage of the balance monthly.

Answer 23

revolving charge account

Question 24

Privately owned organizations that collect credit information on businesses.

Answer 24

trade-credit agencies

Question 25

Financing provided by suppliers to client companies.

Answer 25

trade-credit

Question 26

The extent to which a good or service is perceived by a customer as meeting his or her needs or wants, measured by the customer’s willingness to pay for it.

Answer 26

value

Question 27

A technique that sets more than one price for a product or service in order to offer price concessions to certain customers.

Answer 27

variable pricing strategy