Exam 13: Pricing Concepts

Parker Industries is a small company with a big name! Parker Industries is actually a one-person company that imports strands of LED lights from China and sells them through its website. Parker's only overhead is a storage unit for inventory that costs $125 a month and a $25 monthly fee for website hosting. Currently, Parker imports the lights for $.99 each (including inbound shipping) and sells them for $4.49. Parker also pays shipping expenses of $.50 per light strand. If Parker's shipping charges increased to $.75 a strand, what would happen?

Maddie noticed that many students on campus had t-shirts and sweatshirts with Greek organization letters or club names on them. Recognizing that there was a huge market for this attire, Maddie rented a store front and a silk screening machine to get into the t-shirt business. Maddie's rent is $1,000 a month, including utilities. The silk screen machine leases for $300 a month. Maddie can buy blank t-shirts for $6 each and sweatshirts for $10 each. Maddie calculated the cost of materials for the silk screening at $2 per unit. For pricing decisions, Maddie should consider the $2 cost of silk screening material as a:

Businesses that use cost-based pricing often have different markup percentage for different types of products.

Vandelay Industries manufactures a range of latex products. Vandelay recently purchased new equipment to manufacture latex gloves for the medical community. The new machinery leases for $70,000 annually and can produce 10,000 pairs of gloves each day. The raw latex material for each pair of gloves costs $.03 and Vandelay sells the gloves at a wholesale price of $.10 a pair. Currently, sales are 2,500,000 annually. What impact would a $.01 reduction in variable cost have on overall profit?

A company incurs fixed costs of $35,000 and average variable costs of $7 per item. This company sells 10,000 units and just breaks even. The unit selling price for the product is:

The breakeven model assumes per-unit variable costs do not change at different levels of operation. In reality, per-unit variable costs often increase as production quantities increase.

Designer companies such as Prada, Chanel, and Cartier tend to price their product very high to infer quality and exclusivity to potential customers. Strategically, this approach is known as a:

The basic breakeven model addresses the question of whether customers will actually purchase the product at the specified price in the quantity required to break even or make a profit.

Vandelay Industries manufactures a range of latex products. To set the price of its products, George, the CEO of Vandelay, calculates the total cost associated with the manufacturing of each product, then multiples that by 1.5 to get the sales price. Therefore, a product that cost $10 for Vandelay to manufacture would sell for $15. Vandelay's margin percentage on the sale is:

Walter White is a pharmaceutical distributor. Walter takes a cost-based approach to pricing his products by tripling his price for each of his products. For example, products that Walter imports from Mexico for $2, he sells for $6. What is Walter's sales margin?

Maddie noticed that many students on campus had t-shirts and sweatshirts with Greek organization letters or club names on them. Recognizing that there was a huge market for this attire, Maddie rented a store front and a silk screening machine to get into the t-shirt business. Maddie's rent is $1,000 a month, including utilities. The silk screen machine leases for $300 a month. Maddie can buy blank t-shirts for $6 each and sweatshirts for $10 each. Maddie calculated the cost of materials for the silk screening at $2 per unit. Considering only the figures presented above, what are Maddie's fixed costs?

A price is the amount of funds required to purchase a good or service.

Maddie noticed that many students on campus had t-shirts and sweatshirts with Greek organization letters or club names on them. Recognizing that there was a huge market for this attire, Maddie rented a store front and a silk screening machine to get into the t-shirt business. Maddie's rent is $1,000 a month, including utilities. The silk screen machine leases for $300 a month. Maddie can buy blank t-shirts for $6 each and sweatshirts for $10 each. Maddie calculated the cost of materials for the silk screening at $2 per unit. For pricing decisions, Maddie should consider her $300 lease on the machine as a:

A retailer that uses a cost-based pricing approach would base its price on:

Total fixed costs divided by the product's contribution margin gives us:

Jamara has started a home party business that hosts parties and those attending paint signs. Jamara must pay $500 a year to be a representative for Paint A Sign. In addition, Jamara buys all the materials for the parties, including the metal base, the paints, brushes, stencils, and transfers. These items all add up to $10 on average. Jamara charges each participant $25 for each sign they make. For Jamara's Paint A Sign business, the $500 franchise fee is a:

Maddie noticed that many students on campus had sweatshirts with Greek organization letters or club names on them. Recognizing that there was a huge market for this attire, Maddie rented a store front and a silk screening machine to get into the sweatshirt business. Maddie's rent is $1,000 a month, including utilities. The silk screen machine leases for $300 a month. Maddie can buy sweatshirts for $10 each and determined the cost of materials for the silk screening at $2 per unit. Considering just the figures provided above, how many sweatshirts does she need to sell each month to breakeven if she prices the screened sweatshirts at $25?

The bookstore on your college campus uses a cost-based pricing approach with a 50% markup percentage. A new textbook has a wholesale price of $200. What will you be charged for the textbook?

Parker Industries is a small company with a big name! Parker Industries is actually a one-person company that imports strands of LED lights from China and sells them through its website. Parker's only overhead is a storage unit for inventory that costs $125 a month and a $25 monthly fee for web site hosting. Currently, Parker imports the lights for $.99 each (including inbound shipping) and sells them for $4.49. Parker also pays shipping expenses of $.50 per light strand. What is Parker's contribution margin?

A company might sell a product below the production costs for short-term promotional purposes.