76. A product has a list price of CU 120 and a trade discount of 15% is given to all customers. Its cost is CU 70. What is the gross profit margin on the net selling price?

A) 41.7%
B) 45.7%
C) 68.6%
D) 31.4%

Correct: D difficult Pricing: margin

Net price = 120 x 85% = CU 102. Profit = 32. Margin = 32 / 102 = 31.4%. If you answered 41.7% you used the list price. If you answered 45.7% you gave the mark-up on cost (32 / 70). If you answered 68.6% you gave cost as a percentage of net price.

77. A product costs CU 18 per unit and sales are expected to be 25,000 units. Capital employed is CU 300,000 of non-current assets and CU 200,000 of working capital. The required return is 15% on total capital employed. What is the price?

A) CU 19.80
B) CU 20.70
C) CU 21.00
D) CU 38.00

Correct: C difficult Pricing: target return

Required profit = 500,000 x 15% = 75,000, or CU 3 a unit. Price = 18 + 3 = CU 21. If you answered CU 19.80 you excluded the working capital. If you answered CU 20.70 you added 15% to cost. If you answered CU 38.00 you added the capital employed per unit (20) with no return calculation.

78. Variable cost is CU 18 a unit and fixed costs are CU 90,000 on 10,000 units. A mark-up of 120% is added to variable cost. What is the price?

A) CU 21.60
B) CU 39.60
C) CU 59.40
D) CU 15.00

Correct: B difficult Pricing: cost-plus

Price = 18 x (1 + 1.20) = CU 39.60. If you answered CU 21.60 you gave the mark-up only (18 x 1.2). If you answered CU 59.40 you applied the 120% to the full cost of CU 27. If you answered CU 15 you divided by 1.2.

79. Total cost is CU 140,000 for 4,000 units. A mark-up of 30% is added to full cost. What is the price per unit?

A) CU 50.00
B) CU 35.00
C) CU 45.50
D) CU 10.50

Correct: C difficult Pricing: cost-plus

Full cost per unit = 35. Price = 35 x 1.30 = CU 45.50. If you answered CU 50 you treated 30% as a margin on price (35 / 0.7). If you answered CU 35 you gave cost. If you answered CU 10.50 you gave the mark-up only.

80. Division S has spare capacity and a variable cost of CU 22. Division R can pay up to CU 36 (its net marginal revenue). The external price for S's product is CU 31. What transfer price range benefits the group and both divisions?

A) CU 22 to CU 36
B) CU 31 to CU 36
C) CU 22 to CU 31
D) CU 31 to CU 22

Correct: A difficult Transfer pricing

With spare capacity S's minimum is its variable cost of CU 22 (no opportunity cost), and R's maximum is its net marginal revenue of CU 36. The external price is not a minimum when S cannot sell more externally. If you chose a minimum of CU 31 you assumed no spare capacity. If you chose a maximum of CU 31 you capped R at the external price. The last option is not a range.

81. S sells externally at CU 40 and saves CU 3 of selling and packing costs on internal sales. S is at full capacity. R's net marginal revenue is CU 41. What transfer price range is acceptable?

A) CU 40 to CU 41
B) CU 37 to CU 41
C) CU 22 to CU 41
D) CU 37 to CU 40

Correct: B difficult Transfer pricing

At full capacity S's minimum is the external price less costs saved: 40 - 3 = CU 37. R's maximum is CU 41. If you chose CU 40 as the minimum you ignored the saved costs. If you chose a minimum of CU 22 you assumed spare capacity (not given). If you chose a maximum of CU 40 you capped R at S's external price.

82. Which TWO of the following are conditions for successful price discrimination? (1) The market can be divided into segments with different price sensitivity. (2) Customers cannot easily resell the product between segments. (3) Costs must differ between segments. (4) All segments must have identical demand.

A) (1) and (3) only
B) (1) and (2) only
C) (2) and (4) only
D) (3) and (4) only

Correct: B difficult Pricing strategies

Discrimination works when segments can be separated, have different price sensitivity and cannot trade with one another. Different costs are not needed, and identical demand removes the benefit. If you chose (3) you required cost differences. If you chose (4) you required identical demand.

83. A hotel has 30 rooms for 30 nights. Occupancy is expected to be 65% and monthly costs are CU 58,500. The price must give a profit of 20% of revenue. What is the price per occupied room-night?

A) CU 120
B) CU 65
C) CU 81
D) CU 125

Correct: D difficult Pricing: services

Occupied room-nights = 30 x 30 x 65% = 585. Cost per room-night = CU 100. Price = 100 / 0.8 = CU 125. If you answered CU 120 you added a 20% mark-up. If you answered CU 65 you divided by all 900 available room-nights. If you answered CU 81 you divided that CU 65 by 0.8.

84. Which TWO of the following are correct? (1) Margin is profit as a percentage of selling price. (2) Mark-up is profit as a percentage of cost. (3) A 25% margin is the same as a 25% mark-up. (4) For a given profit, the mark-up percentage is always lower than the margin percentage.

A) (1) and (3) only
B) (2) and (4) only
C) (1) and (2) only
D) (3) and (4) only

Correct: C difficult Pricing: margin and mark-up

Margin uses price as the base and mark-up uses cost. A 25% margin is a 33.3% mark-up, so the mark-up is always the higher percentage. If you chose (3) you treated the two as equal. If you chose (4) you reversed the relationship.

85. Which pricing strategy best suits a new innovative product with few competitors, where early buyers are not price sensitive and development costs are high?

A) Penetration pricing
B) Marginal cost pricing
C) Loss leader pricing
D) Price skimming

Correct: D difficult Pricing strategies

Skimming sets a high initial price to recover development costs from buyers willing to pay for novelty, and the price is reduced later. Penetration suits price-sensitive markets where share is sought. Marginal cost pricing and loss leaders sacrifice margin. If you chose penetration you assumed buyers are price sensitive.

86. Demand is P = 90 - 0.01Q. Variable cost is CU 30 a unit and fixed costs are CU 40,000. What is the maximum profit?

A) CU 90,000
B) CU 50,000
C) CU 180,000
D) CU 130,000

Correct: B difficult Pricing: demand and profit

Marginal revenue = 90 - 0.02Q. Setting MR = 30 gives Q = 3,000 and P = CU 60. Profit = 3,000 x 30 - 40,000 = CU 50,000. If you answered CU 90,000 you ignored the fixed costs. If you answered CU 180,000 you gave the revenue. If you answered CU 130,000 you added the fixed costs to the contribution.

87. Variable cost is CU 21 a unit, fixed costs are CU 180,000 and expected sales are 12,000 units. What price gives a profit of CU 60,000?

A) CU 41
B) CU 36
C) CU 26
D) CU 56

Correct: A difficult Pricing: target profit

Required contribution = 180,000 + 60,000 = 240,000, or CU 20 a unit. Price = 21 + 20 = CU 41. If you answered CU 36 you gave the breakeven price (no profit). If you answered CU 26 you omitted the fixed costs. If you answered CU 56 you added the required contribution of CU 20 to the breakeven price of CU 36, counting the fixed costs twice.

88. Which TWO of the following are correct? (1) A negotiated transfer price reflects the bargaining power of the divisions. (2) A market-based transfer price is suitable where a competitive external market exists. (3) A full cost transfer price always leads to decisions that maximise group profit. (4) Transfer prices change the total profit of the group directly.

A) (1) and (2) only
B) (1) and (3) only
C) (2) and (4) only
D) (3) and (4) only

Correct: A difficult Transfer pricing

Negotiated prices depend on bargaining, and market prices suit competitive markets. Full cost prices can lead to sub-optimal decisions, and transfer prices only move profit between divisions. If you chose (3) you credited full cost with perfect decisions. If you chose (4) you forgot that the effect cancels out for the group.

89. A theatre has 200 seats. A peak performance sells 120 seats at CU 50 and an off-peak one sells 60 seats at CU 30. Variable cost is CU 5 per seat sold and fixed cost is CU 4,000 per day for both performances. What is the profit for the day?

A) CU 6,900
B) CU 3,800
C) CU 2,900
D) CU 7,800

Correct: C difficult Pricing: services

Contribution = 120 x 45 + 60 x 25 = 6,900. Profit = 6,900 - 4,000 = CU 2,900. If you answered CU 6,900 you omitted fixed costs. If you answered CU 3,800 you gave revenue less fixed costs (7,800 - 4,000). If you answered CU 7,800 you gave revenue.

90. Division A (variable cost CU 20) transfers 10,000 units to Division B at CU 28. B incurs CU 8 of further variable cost and sells at CU 45. What is the group contribution from these units?

A) CU 170,000
B) CU 90,000
C) CU 80,000
D) CU 250,000

Correct: A difficult Transfer pricing

Group contribution = 45 - 20 - 8 = CU 17 a unit x 10,000 = CU 170,000. The transfer price only splits it: A earns 80,000 and B earns 90,000. If you answered CU 90,000 you gave B's share. If you answered CU 80,000 you gave A's share. If you answered CU 250,000 you ignored B's further costs.

91. A product costs CU 54 and the required profit margin is 28% of selling price. What is the selling price?

A) CU 69.12
B) CU 75.00
C) CU 15.12
D) CU 192.86

Correct: B difficult Pricing: margin and mark-up

Price = 54 / (1 - 0.28) = CU 75.00, because cost is 72% of price. If you answered CU 69.12 you applied a 28% mark-up on cost. If you answered CU 15.12 you calculated 28% of cost. If you answered CU 192.86 you divided the cost by the margin percentage.

92. Total cost is CU 11 a unit at 20,000 units. The capital employed is CU 600,000 and the required return is 15%. What price gives the required return on capital employed?

A) CU 12.65
B) CU 15.50
C) CU 4.50
D) CU 26.00

Correct: B difficult Pricing: return on capital employed

Required profit = 15% x 600,000 = 90,000, or CU 4.50 a unit. Price = 11 + 4.50 = CU 15.50. If you answered CU 12.65 you applied a 15% mark-up to cost. If you answered CU 4.50 you gave the profit per unit only. If you answered CU 26.00 you added 15 currency units, not 15% of the capital employed.

93. Division A makes a component with variable production cost CU 18 and fixed cost CU 7 a unit. It is at full capacity selling externally at CU 34, but internal sales would save variable selling costs of CU 3 a unit. What is the minimum transfer price?

A) CU 34
B) CU 18
C) CU 31
D) CU 25

Correct: C difficult Transfer pricing: minimum price

At full capacity the minimum is marginal cost plus the contribution lost: 18 + (34 - 18 - 3) = CU 31, which is the external price less the selling cost saved. If you answered CU 34 you ignored the saving on internal sales. If you answered CU 18 you assumed spare capacity. If you answered CU 25 you used full cost.

94. Division B can sell its final product for CU 78. Further processing costs CU 29 and variable selling costs CU 4 a unit. What is the maximum price B would pay for the component from Division A?

A) CU 45
B) CU 49
C) CU 74
D) CU 78

Correct: A difficult Transfer pricing: maximum price

The maximum is B's net marginal revenue: 78 - 29 - 4 = CU 45. If you answered CU 49 you ignored selling costs. If you answered CU 74 you ignored processing costs. If you answered CU 78 you gave the final selling price.

95. A product has a list price of CU 120. A trade discount of 15% is given, and a further 3% settlement discount applies to the discounted price if paid within 10 days. What does the seller receive if the customer pays within 10 days?

A) CU 98.40
B) CU 102.00
C) CU 116.40
D) CU 98.94

Correct: D difficult Pricing: discounts

Net price = 120 x 0.85 = 102.00, then x 0.97 = CU 98.94. The settlement discount is on the discounted price. If you answered CU 98.40 you added the discounts (18%). If you answered CU 102.00 you ignored the settlement discount. If you answered CU 116.40 you ignored the trade discount.

96. Demand is P = 140 - 0.02Q, where Q is the quantity. Marginal cost is a constant CU 40. What price maximises profit?

A) CU 40
B) CU 115
C) CU 65
D) CU 90

Correct: D difficult Pricing: marginal revenue and cost

MR = 140 - 0.04Q. Setting MR = MC: 140 - 0.04Q = 40, so Q = 2,500 and P = 140 - 50 = CU 90. If you answered CU 40 you set price equal to marginal cost. If you answered CU 115 you used a marginal revenue slope of 0.02, not 0.04, for the price. If you answered CU 65 you averaged the price and the marginal cost.

97. Direct materials are CU 14, direct labour CU 9 and variable overhead CU 3 a unit. Fixed overhead of CU 100,000 is absorbed over 25,000 units. Price is full cost plus a 30% mark-up. What is the price?

A) CU 33.80
B) CU 42.86
C) CU 29.90
D) CU 39.00

Correct: D difficult Pricing: cost-plus

Full cost = 14 + 9 + 3 + 4 = CU 30. Price = 30 x 1.30 = CU 39. If you answered CU 33.80 you applied the mark-up to variable cost (26). If you answered CU 42.86 you treated 30% as a margin on selling price. If you answered CU 29.90 you applied the mark-up to prime cost (23).

98. Which TWO statements about pricing strategies are correct? (1) Penetration pricing sets a low initial price to gain market share. (2) Price skimming sets a high initial price to recover development costs quickly. (3) Penetration pricing suits a product with inelastic demand and a small market. (4) Price skimming relies on a large, price-sensitive market.

A) (1) and (3) only
B) (2) and (4) only
C) (1) and (2) only
D) (3) and (4) only

Correct: C difficult Pricing: market-based strategies

Penetration needs price-sensitive demand and large volumes, and skimming works where some customers will pay a premium. If you chose (3) you applied penetration to inelastic demand. If you chose (4) you applied skimming to a price-sensitive market.

99. A consultant's annual salary is CU 78,000 and overheads CU 45,000. She is expected to charge 180 days a year and the firm wants a profit of 20% of fees. What is the day rate, to the nearest cent?

A) CU 820.00
B) CU 683.33
C) CU 854.17
D) CU 698.86

Correct: C difficult Pricing: services

Fees needed = 123,000 / 0.80 = 153,750. Day rate = 153,750 / 180 = CU 854.17. If you answered CU 820 you used a 20% mark-up. If you answered CU 683.33 you ignored the profit. If you answered CU 698.86 you used 220 days rather than the 180 chargeable days.

100. A customer buys 450 units at CU 50. Variable cost is CU 32. A 4% discount on all units is offered on orders of 500 units or more, and the customer says it will then order 520 units. What is the effect on contribution?

A) Increase of CU 220
B) Increase of CU 1,260
C) Increase of CU 1,120
D) Increase of CU 8,320

Correct: A difficult Pricing: discounts

Current contribution = 450 x 18 = 8,100. New price = 48, contribution 16, so 520 x 16 = 8,320. Increase = CU 220. If you answered CU 1,260 you valued the extra 70 units at the old contribution and ignored the discount. If you answered CU 1,120 you gave the discount only on the extra units. If you answered CU 8,320 you gave the new contribution rather than the increase.