Chapter 10 & 11
ICA 1: Elements of price setting
1. The usual retail price of an item is $100.00. The manufacturer's cost to produce the item is $40.00. Retailers take a 50 percent markup and wholesalers take a 10 percent markup. (Note: markup is calculated on selling price, unless otherwise indicated. Do you know why mark-up is traditionally calculated on selling price?)
a) What is the retailer's markup in dollars?
b) What is the wholesale price?
c) What is the manufacturer's price?
d) What is the manufacturer's markup percentage?
e) What is the manufacturer's markup percentage on cost?
2. The Burberry Manufacturing Company is trying to set its price on an item that will sell at retail for $80.00.
a) For retailers to earn a markup of 25 percent, what should the wholesale price be?
b) For the wholesalers in 2 (a) to earn a markup of 10 percent, what should the manufacturer's price be?
3. Bushwacker Corp. has fixed costs of $2,000,000 and average variable costs of $100 per unit at all levels of output. It wishes to earn a profit of $300,000 this year. Assume this year Bushwacker expects to sell 5,000 units of its product.
a) Use the cost based pricing method to determine what price Bushwacker should charge for its product.
b) Suppose, at the price determined above, Bushwacker were only able to sell 4,000 units this year because of increased competition. What would its profit (or loss) be?
c) Suppose, at the price determined above, Bushwacker's actual sales this year was 7,000 units. What would its profit (or loss) be?
3. Complete the following table by filling in the blanks. Hint: start with the first column and work to the right, column by column.
Quantity produced
Item 0 1 2 3 4
Total Cost $400
Total fixed cost $120
Total variable cost $140
Average cost N/A* $110
Average fixed cost N/A*
Average variable cost N/A* $70
* Note: N/A means not applicable (because at zero output there is not an average cost per unit).
Chapter 10 & 11
ICA 1: Elements of price setting
1. The usual retail price of an item is $100.00. The manufacturer's cost to produce the item is $40.00. Retailers take a 50 percent markup and wholesalers take a 10 percent markup. (Note: markup is calculated on selling price, unless otherwise indicated. Do you know why mark-up is traditionally calculated on selling price?)
a) What is the retailer's markup in dollars?
b) What is the wholesale price?
c) What is the manufacturer's price?
d) What is the manufacturer's markup percentage?
e) What is the manufacturer's markup percentage on cost?
2. The Burberry Manufacturing Company is trying to set its price on an item that will sell at retail for $80.00.
a) For retailers to earn a markup of 25 percent, what should the wholesale price be?
b) For the wholesalers in 2 (a) to earn a markup of 10 percent, what should the manufacturer's price be?
3. Bushwacker Corp. has fixed costs of $2,000,000 and average variable costs of $100 per unit at all levels of output. It wishes to earn a profit of $300,000 this year. Assume this year Bushwacker expects to sell 5,000 units of its product.
a) Use the cost based pricing method to determine what price Bushwacker should charge for its product.
b) Suppose, at the price determined above, Bushwacker were only able to sell 4,000 units this year because of increased competition. What would its profit (or loss) be?
c) Suppose, at the price determined above, Bushwacker's actual sales this year was 7,000 units. What would its profit (or loss) be?
3. Complete the following table by filling in the blanks. Hint: start with the first column and work to the right, column by column.
Quantity produced
Item 0 1 2 3 4
Total Cost $400
Total fixed cost $120
Total variable cost $140
Average cost N/A* $110
Average fixed cost N/A*
Average variable cost N/A* $70
* Note: N/A means not applicable (because at zero output there is not an average cost per unit).
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Related questions
FlashX company sells hi-end video games to consumers via the internet, each at a price of $75. It buys each game at a cost of $40, and it incurs another $5 per unit in distribution expenses. If FlashX incurs fixed overhead expenses per year of $2.1 million how many units does it need to sell in order to break even?
70,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
65,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
52,500 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
28,000 QUESTION 6 Why do retailers use the âmarkup on priceâ method of pricing, rather than the âmarkup on costâ method?
2 points QUESTION 7 What can a service marketer do to manage the issue of âperishability?â
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