Chapter 16 packet notes Flashcards
A specification of what a seller requires in exchange for transferring ownership for use of a product or service.
Price
This causes a loss in revenue.
Prices Set too Low
This also causes a loss in revenue.
Prices Set too High
Related for many goods and services.
Price and Demand
An agreement between a buyer and a seller that provides for delayed payment for a product or service.
Credit
Quantity sold X price per unit = ____ ______
Gross Revenue
- Cost of goods offered
- Selling cost
- Overhead cost
- These three put together equals total cost
The Three Components of Total Cost in Determining Price
The sum of cost of goods sold, selling expenses, and overhead costs.
Total Cost
Costs that vary with the quantity produced or sold.
Variable Costs
Costs that remain constant as the quantity product or sold varies.
Fixed Costs
An approach in which total cost for a given period is divided by quantity sold in that period to set a price.
Average Pricing
The degree to which a change in price affects the quantity demanded.
- Elastic demand
- Inelastic demand
The Elasticity of Demand
Demand that changes significantly when there is a change in the price of the product.
Elastic Demand
Demand that does not change significantly when there is a change in price of the product.
Inelastic Demand
Customers will pay more for a product or service that they percieve as important to their needs.
Pricing and Competitive Advantage
- 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
Prestige Pricing
A comparison of alternative cost and revenue estimates in order to determine the acceptability of each price.
Break-Even Analysis
Examining revenue-cost relationships: the quantity at which the product will generate enough revenue to start earning a profit.
Steps in the Break-Even Analysis
- Breakeven point
- Contribution Margin
Cost and Revenue Relationships
- The sales volume at which total sales revenue equals total costs (fixed and variable).
- The point at which profitability starts and losses cease.
Breakeven Point
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.
Contribution Margin
- 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.
Adjusted Breakeven Analysis- Incorporating Sales Forecasts