[Chapter 2] Pricing and Profitability Analysis TB

Question 1

Which of the following is NOT an example of a market structure?

A. oligopoly
B. monopoly
C. barrier market
D. perfectly competitive

Answer 1

barrier market

Question 2

Which type of expenses does a monopoly usually incur that are different from the other types of market structures?

A. marketing costs such as advertising, positioning, discounting, and coupons
B. costs of differentiation such as advertising, rebates, coupons
C. no special expenses
D. legal and lobbying expenditures

Answer 2

legal and lobbying expenditures

Question 3

Which of the following is true regarding expenses related to specific market structure types?
A. Monopolistic competition and oligopolies are the only structures where costs of differentiation have an impact.
B. Both monopolies and monopolistic competition structures normally must expend legal and lobbying costs.
C. In perfect competition and monopolistic competition, differentiation costs have an impact.
D. In perfect competition and oligopolies, there are no special expenses related to the structure of the organization.

Answer 3

Monopolistic competition and oligopolies are the only structures where costs of differentiation have an impact.

Question 4

Monopolistic competition is best defined as
A. a structure that has many buyers and sellers, but the products are differentiated on some basis.
B. a structure where customers are willing to pay a little more for the unique feature that appeals to them.
C. a structure that combines perfect competition and monopoly, but is closer to a competitive situation.
D. all of these.

Answer 4

A. a structure that has many buyers and sellers, but the products are differentiated on some basis.
B. a structure where customers are willing to pay a little more for the unique feature that appeals to them.
C. a structure that combines perfect competition and monopoly, but is closer to a competitive situation.

Question 5

What is the slope of the demand curve?

Answer 5

Downward sloping

Question 6

What is the slope of the supply curve?

Answer 6

Upward sloping

Question 7

Which of the following markets is characterized by the following: many buyers and sellers, a homogeneous product, easy entry into and exit from the industry, and all firms are price takers?

A. perfectly competitive market
B. monopolistic competition
C. monopoly
D. oligopoly

Answer 7

perfectly competitive market

Question 8

Which of the following markets is characterized by the following: only a few firms in the industry, a fairly unique product, difficult entry into the industry, and spending for differentiation of the product?

A. perfectly competitive market
B. monopolistic competition
C. monopoly
D. oligopoly

Answer 8

oligopoly

Question 9

Which of the following markets is characterized by the following: many firms in the industry, a somewhat unique product, fairly easy entry into the industry, and spending for differentiation of the product?

A. perfectly competitive market
B. monopolistic competition
C. monopoly
D. oligopoly

Answer 9

monopolistic competition

Question 10

Which of the following markets is characterized by the following: a single firm in the industry, a unique product, and difficult entry into the industry?

A. perfectly competitive market
B. monopolistic competition
C. monopoly
D. oligopoly

Answer 10

monopoly

Question 11

Which of the following statements is FALSE?

A. The markup is a percentage applied to base cost.
B. The markup is an absolute rule.
C. A major advantage of markup pricing is that standard markups are easy to apply.
D. The markup can be calculated using a variety of bases

Answer 11

The markup is an absolute rule.

Question 12

Which of the following is a FALSE statement about target costing?

A. Target costing is a method of determining the cost of a product or service based on the price that customers are willing to pay.
B. The cost is calculated by subtracting the desired profit from the target price.
C. Target costing is an interactive process.
D. Target costing is cost driven

Answer 12

Target costing is cost driven

Question 13

Price skimming occurs in which of the following life-cycle stages?
A. Introduction
B. Growth
C. Maturity
D. Decline

Answer 13

Introduction

Question 14

_______________ is the pricing of a new product at a low initial price to build market share quickly.

A. Penetration pricing
B. Predatory pricing
C. Price skimming
D. Target costing

Answer 14

Penetration pricing

Question 15

_______________ is where a higher price is charged at the beginning of a product’s life cycle.

A. Penetration pricing
B. Predatory pricing
C. Price skimming
D. Target costing

Answer 15

Price skimming

Question 16

_______________ is said to occur when firms with market power price products “too high.”

A. Predatory prices
B. Price discrimination
C. Price gouging
D. Penetration pricin

Answer 16

Price gouging

Question 17

After the 2006 tornado in Oklahoma City, OK, businesses were trying to sell lumber for 50 percent above their regular prices. This is an example of
A. predatory prices.
B. price discrimination.
C. price gouging.
D. penetration pricing.

Answer 17

price gouging

Question 18

___________ refers to charging different prices to different customers for essentially the same product.

A. Gouging
B. Price discrimination
C. Skimming
D. Penetration pricing

Answer 18

Price discrimination

Question 19

The Robinson-Patman Act allows price discrimination under which of the following circumstances?

A. if revenues justify it
B. if the competitive situation demands it
C. if the costs remain the same for all customers
D. The Robinson-Patman Act does not allow price discrimination under any situation.

Answer 19

if the competitive situation demands it

Question 20

_______________ on the international market is called dumping.

A. Price discrimination
B. Predatory pricing
C. Price skimming
D. Penetration pricing

Answer 20

Predatory pricing

Question 21

A disadvantage of absorption costing is

A. that it is not a useful format for decision making.
B. that it might encourage inventory build up.
C. both a and b.
D. none of these.

Answer 21

A. that it is not a useful format for decision making.
B. that it might encourage inventory build up.

Question 22

Gross margin is to absorption costing as _______________ is to variable costing.

A. gross profit
B. contribution margin
C. net income
D. territory margin

Answer 22

contribution margin

Question 23

When monthly production volume is constant and sales volume is less than production, net income determined with variable costing procedures will

A. always be greater than net income determined using absorption costing.
B. always be less than net income determined using absorption costing.
C. be equal to net income determined using absorption costing.
D. be equal to contribution margin per unit times units sold

Answer 23

always be less than net income determined using absorption costing.

Question 24

When production is less than sales volume, net income under absorption costing will be _______________ profits using variable costing procedures.

A. greater than
B. less than
C. equal to
D. randomly different than

Answer 24

less than

Question 25

Inventory values calculated using variable costing as opposed to absorption costing will generally be

A. equal.
B. less.
C. greater.
D. twice as much.

Answer 25

less.

Question 26

Which of the following statements is TRUE?

A. Absorption costing net income exceeds variable costing net income when units produced and sold are equal.
B. Variable costing net income exceeds absorption costing net income when units produced exceed units sold.
C. Absorption costing net income exceeds variable costing net income when units produced are less than units sold.
D. Absorption costing net income exceeds variable costing net income when units produced are greater than units sold

Answer 26

Absorption costing net income exceeds variable costing net income when units produced are greater than units sold

Question 27

All of the following costs are included in inventory under absorption costing EXCEPT

A. direct materials.
B. direct labor.
C. fixed selling expenses.
D. fixed factory overhead.

Answer 27

fixed selling expenses.

Question 28

What is the primary difference between variable and absorption costing?

A. inclusion of fixed selling expenses in product costs
B. inclusion of variable factory overhead in period costs
C. inclusion of fixed selling expenses in period costs
D. inclusion of fixed factory overhead in product cost

Answer 28

inclusion of fixed factory overhead in product cost

Question 29

Which of the following could be considered a segment?

A. division
B. product-line
C. sales territory
D. all of these

Answer 29

A. division
B. product-line
C. sales territory

Question 30

The sales price variance is created by a difference between:

A. actual and standard contribution margin.
B. actual and expected sales price.
C. expected and standard net income.
D. actual and expected sales volume

Answer 30

actual and expected sales price.

Question 31

The market share variance is calculated by:

A. [(Actual industry sales in units – Budgeted industry sales in units) ´ (Budgeted market share percentage)] ´ (Budgeted average unit contribution margin).
B. [(Actual market share percentage – Budgeted market share percentage) ´ (Actual industry sales in units)] ´ (Budgeted average unit contribution margin).
C. (Actual quantity sold – Budgeted quantity sold) ´ Budgeted average unit contribution margin.
D. (Actual quantity sold – Budgeted quantity sold) ´ Actual average unit contribution margin.

Answer 31

[(Actual market share percentage – Budgeted market share percentage) ´ (Actual industry sales in units)] ´ (Budgeted average unit contribution margin).

Question 32

According to Hansen and Mowen, which of the following stages comes first?

A. Introduction
B. Growth
C. Development
D. Decline

Answer 32

Development

Question 33

Which of the following stages is characterized by rapid increases in sales and production?

A. Introduction
B. Growth
C. Maturity
D. Decline

Answer 33

Growth

Question 34

Which of the following stages has revenues for the entire industry decreasing?

A. Introduction
B. Growth
C. Maturity
D. Decline

Answer 34

Decline

Question 35

The majority of the product cost is “locked in” during which of the following life-cycle stages?

A. Introduction
B. Growth
C. Development
D. Decline

Answer 35

Development

Question 36

Which of the following is NOT a limitation of profit management?

A. the emphasis on quantifiable measures
B. emphasis on volume variances
C. the focus on past performance
D. a higher emphasis on short-run optimization

Answer 36

emphasis on volume variances

Question 37

An alternative to the limitation of focusing on profits would be

A. communicating other measures are important but continue to base rewards on profits.
B. overstate the value of ending inventory in order to reduce cost of goods sold and improve operating income
performance.
C. focus on long-term objectives and appropriate emphasis on profit.
D. analyze the product mix

Answer 37

focus on long-term objectives and appropriate emphasis on profit.

Question 38

What are the ways employee behavior changes in relation to a profit emphasis?

A. desire to avoid losses may result in short-run decisions
B. unethical behavior may take place if rewards or bonuses are based on profits
C. ignoring the less measurable outcomes that may benefit the company
D. all of these are potential changes

Answer 38

A. desire to avoid losses may result in short-run decisions
B. unethical behavior may take place if rewards or bonuses are based on profits
C. ignoring the less measurable outcomes that may benefit the company

Question 39

A successful firm:

A. places appropriate emphasis on profit, is aware of economic and environmental trends outside the company, and measures impact on the community and employees.
B. values numeric profit and encourage employees to do what is in their power to increase profits.
C. ensures there are always monthly, quarterly, and annual profit and lost statements as the sole measure of
success so that all employees are aware of the success or failure of a period.
D. none of thes

Answer 39

places appropriate emphasis on profit, is aware of economic and environmental trends outside the company, and measures impact on the community and employees.