Chapter 16 packet notes Flashcards

1
Q

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

A

Price

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2
Q

This causes a loss in revenue.

A

Prices Set too Low

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3
Q

This also causes a loss in revenue.

A

Prices Set too High

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4
Q

Related for many goods and services.

A

Price and Demand

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5
Q

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

A

Credit

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6
Q

Quantity sold X price per unit = ____ ______

A

Gross Revenue

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7
Q
  1. Cost of goods offered
  2. Selling cost
  3. Overhead cost
  • These three put together equals total cost
A

The Three Components of Total Cost in Determining Price

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8
Q

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

A

Total Cost

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9
Q

Costs that vary with the quantity produced or sold.

A

Variable Costs

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10
Q

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

A

Fixed Costs

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11
Q

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

A

Average Pricing

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12
Q

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

  • Elastic demand
  • Inelastic demand
A

The Elasticity of Demand

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13
Q

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

A

Elastic Demand

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14
Q

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

A

Inelastic Demand

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15
Q

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

A

Pricing and Competitive Advantage

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16
Q
  • 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
A

Prestige Pricing

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17
Q

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

A

Break-Even Analysis

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18
Q

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

A

Steps in the Break-Even Analysis

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19
Q
  • Breakeven point
  • Contribution Margin
A

Cost and Revenue Relationships

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20
Q
  • The sales volume at which total sales revenue equals total costs (fixed and variable).
  • The point at which profitability starts and losses cease.
A

Breakeven Point

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21
Q

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.

A

Contribution Margin

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22
Q
  • 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.
A

Adjusted Breakeven Analysis- Incorporating Sales Forecasts

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23
Q

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

  • Operating expenses
  • Subsequent price reductions
  • Desired profit
A

Markup Pricing

24
Q

Markup divided by selling price times 100 =

A

Markup as Percentage of Selling Price

25
Q

Markup divided by cost times 100 =

A

Markup as Percentage of Cost

26
Q
  • Penetration pricing
  • Skimming pricing
  • Variable pricing
  • Price lining
  • What the market will bear
  • Dynamic pricing
  • Follow-the-leader pricing
A

Pricing Strategies

27
Q

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

A

Penetration Pricing

28
Q

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

A

Skimming Pricing

29
Q

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

A

Variable Pricing

30
Q

Setting a range of serveral different merchandise price levels.

A

Price Lining

31
Q

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

A

What the Market Will Bear

32
Q

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

A

Dynamic Pricing

33
Q

Using a particular competitor as a model in setting prices.

A

Follow-the-Leader Pricing

34
Q
  • 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.
A

Setting Prices: Controls and Situations

35
Q
  • 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
A

Benefits of Credit to Borrowers

36
Q
  • 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.
A

Benefits of Credit to Sellers

37
Q
  • 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
A

Factors that Affect Selling on Credit

38
Q
  1. Consumer credit
  2. Trade credit
A

Types of Credit (Two Broad Classes of Credit)

39
Q

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

A

Consumer Credit (Firms Selling to Other Businesses)

40
Q

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

A

Trade Credit

41
Q

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.

A

2/10, net 30

42
Q
  • Open charge account
  • Installment account
  • Revolving charge account
A

Types of Consumer Credit Accounts

43
Q

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

A

Open Charge Account

44
Q

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

A

Installment Account

45
Q

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

A

Revolving Charge Account

46
Q
  • Bank Credit Cards
  • Entertainment Credit Cards
  • Retailer Credit Cards
A

Types of Credit Cards (3 Basic Types)

47
Q

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

A

Bank Credit Cards

48
Q

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

A

Entertainment Credit Cards

49
Q

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

A

Retailer Credit Cards

50
Q
  • 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?
A

Evaluation of Credit Applicants

51
Q
  1. Character
  2. Capital
  3. Capacity
  4. Conditions
  5. Collateral
A

The Traditional Five C’s of Credit

52
Q

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

A

Aging Schedule

53
Q
  • Timely notification
  • Warning consumers that they may do damage to their credit if they fail to pay.
  • Bad debt ratio
A

Billing and Collection Procedures

54
Q

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

A

Timely Notification

55
Q

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

A

Bad Debt Ratio