126. Demand is P = 300 - 0.05Q, where Q is the quantity. Marginal cost is a constant CU 100. What price maximises profit?

A) CU 100
B) CU 250
C) CU 200
D) CU 150

Correct: C difficult Pricing: marginal revenue and cost

MR = 300 - 0.10Q. Setting MR = MC: 300 - 0.10Q = 100, so Q = 2,000 and P = 300 - 100 = CU 200. If you answered CU 100 you set price equal to marginal cost. If you answered CU 250 you used a marginal revenue slope of 0.05, not 0.10, for the price. If you answered CU 150 you averaged the price and the marginal cost.

127. Direct materials are CU 22, direct labour CU 14 and variable overhead CU 5 a unit. Fixed overhead of CU 200,000 is absorbed over 40,000 units. Price is full cost plus a 35% mark-up. What is the price?

A) CU 62.10
B) CU 55.35
C) CU 70.77
D) CU 48.60

Correct: A difficult Pricing: cost-plus

Full cost = 22 + 14 + 5 + 5 = CU 46. Price = 46 x 1.35 = CU 62.10. If you answered CU 55.35 you applied the mark-up to variable cost (41). If you answered CU 70.77 you treated 35% as a margin on selling price. If you answered CU 48.60 you applied the mark-up to prime cost (36).

128. Which TWO statements about pricing are correct? (1) Cost-plus pricing takes no direct account of demand. (2) Price skimming sets a high initial price for a new, distinctive product. (3) Penetration pricing suits a product with inelastic demand and low volumes. (4) Premium pricing requires the lowest cost in the market.

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

Correct: A difficult Pricing: market-based strategies

Cost-plus is cost-driven and skimming exploits the willingness of some customers to pay more for something new. Penetration pricing needs price-sensitive demand and volume, and premium pricing relies on perceived quality, not low cost. If you chose (3) you applied penetration to inelastic demand. If you chose (4) you linked premium pricing to cost leadership.

129. An architect's annual salary is CU 72,000 and overheads CU 48,000. She is expected to charge 160 days a year and the firm wants a profit of 20% of fees. What is the day rate?

A) CU 937.50
B) CU 900.00
C) CU 750.00
D) CU 681.82

Correct: A difficult Pricing: services

Fees needed = 120,000 / 0.80 = 150,000. Day rate = 150,000 / 160 = CU 937.50. If you answered CU 900 you used a 20% mark-up. If you answered CU 750 you ignored the profit. If you answered CU 681.82 you used 220 days rather than the 160 chargeable days.

130. A customer buys 800 units at CU 25. Variable cost is CU 16. A 6% discount on all units is offered on orders of 900 units or more, and the customer says it will then order 940 units. What is the effect on contribution?

A) Increase of CU 1,260
B) Increase of CU 1,050
C) Increase of CU 7,050
D) Decrease of CU 150

Correct: D difficult Pricing: discounts

Current contribution = 800 x 9 = 7,200. New price = 23.50, contribution 7.50, so 940 x 7.50 = 7,050. Contribution falls by CU 150. If you answered CU 1,260 you valued the extra 140 units at the old contribution and ignored the discount. If you answered CU 1,050 you gave the discount only on the extra units. If you answered CU 7,050 you gave the new contribution rather than the change.

131. A price rise from CU 20 to CU 22 reduces demand from 5,000 to 4,300 units. What is the price elasticity of demand (ignoring the sign)?

A) 1.40
B) 0.71
C) 0.14
D) 0.10

Correct: A difficult Pricing: elasticity

% change in demand = 700 / 5,000 = 14%. % change in price = 2 / 20 = 10%. Elasticity = 14 / 10 = 1.40, so demand is elastic. If you answered 0.71 you inverted the ratio. If you answered 0.14 you gave the change in demand. If you answered 0.10 you gave the change in price.

132. Marginal cost is CU 18 a unit. Fixed costs are CU 300,000 and the target profit is CU 180,000 on expected sales of 30,000 units. What price achieves the target?

A) CU 28
B) CU 24
C) CU 34
D) CU 16

Correct: C difficult Pricing: target profit

Contribution needed = 300,000 + 180,000 = 480,000, so CU 16 a unit. Price = 18 + 16 = CU 34. If you answered CU 28 you covered fixed costs only. If you answered CU 24 you covered the profit only. If you answered CU 16 you gave the required contribution per unit without the marginal cost.

133. Which TWO statements about transfer pricing are correct? (1) At full capacity the minimum transfer price includes the opportunity cost of lost external sales. (2) A negotiated price may be used where there is no perfect external market. (3) A cost-based transfer price always leads to decisions in the company's best interest. (4) The buyer's maximum price is the seller's marginal cost.

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

Correct: D difficult Transfer pricing: principles

The seller must be compensated for contribution lost, and negotiation helps where no market price exists. Cost-based prices can distort decisions, and the buyer's maximum is its net marginal revenue. If you chose (3) you assumed cost-based prices are always best for the group. If you chose (4) you gave the seller's cost as the buyer's maximum.

134. A manufacturer's cost is CU 80 and it requires a 20% margin on its selling price. A wholesaler adds a 25% mark-up and the retailer needs a 30% margin on the retail price. What is the retail price, to the nearest cent?

A) CU 125.00
B) CU 162.50
C) CU 156.25
D) CU 178.57

Correct: D difficult Pricing: margins

Manufacturer's price = 80 / 0.80 = CU 100. Wholesaler's price = 100 x 1.25 = CU 125. Retail price = 125 / 0.70 = CU 178.57. If you answered CU 125 you gave the wholesale price. If you answered CU 162.50 you applied a 30% mark-up to the wholesale price. If you answered CU 156.25 you treated the retailer's 30% as a 20% margin.

135. At CU 18 a unit demand is 20,000 units; at CU 16 it is 24,000 units. Variable cost is CU 9 and fixed costs are CU 100,000 at both levels. What is the effect on profit of cutting the price to CU 16?

A) Increase of CU 24,000
B) Decrease of CU 12,000
C) Increase of CU 68,000
D) Increase of CU 12,000

Correct: B difficult Pricing: price and volume

Contribution at CU 18 = 20,000 x 9 = 180,000. At CU 16 = 24,000 x 7 = 168,000. Profit falls by CU 12,000. If you answered CU 24,000 you gave the increase in revenue. If you answered CU 68,000 you gave the profit at the lower price. If you answered an increase of CU 12,000 you reversed the direction.

136. A business needs a gross margin of 28% on selling price. What mark-up on cost is this equivalent to, to one decimal place?

A) 38.9%
B) 28.0%
C) 22.4%
D) 72.0%

Correct: A difficult Pricing: margin and mark-up

If price is 100, cost is 72 and profit 28. Mark-up = 28 / 72 = 38.9%. If you answered 28.0% you treated the margin as a mark-up. If you answered 22.4% you multiplied 28% by 80%. If you answered 72.0% you gave the cost as a percentage of price.

137. Division S can make 10,000 units. External demand is 7,500 units at CU 30 and variable cost is CU 18 a unit. Division B asks for 4,000 units internally. What is the minimum transfer price per unit?

A) CU 18.00
B) CU 22.50
C) CU 30.00
D) CU 25.50

Correct: B difficult Transfer pricing: partial spare capacity

Spare capacity is 2,500 units, so 1,500 external sales are lost, each with contribution of 12. Minimum = 18 + (1,500 x 12) / 4,000 = CU 22.50. If you answered CU 18.00 you assumed all internal units use spare capacity. If you answered CU 30.00 you used the external price. If you answered CU 25.50 you used the 2,500 spare units for the lost sales.

138. Variable cost is CU 35 a unit and price is variable cost plus a mark-up of 80%. Fixed costs are CU 100,000. What is the profit at sales of 5,000 units?

A) CU 215,000
B) CU 140,000
C) CU 40,000
D) CU 600,000

Correct: C difficult Pricing: mark-up on variable cost

Price = 35 x 1.8 = 63. Contribution = 28 x 5,000 = 140,000. Profit = 140,000 - 100,000 = CU 40,000. If you answered CU 215,000 you deducted fixed costs from revenue only. If you answered CU 140,000 you ignored fixed costs. If you answered CU 600,000 you treated the 80% as a margin on price (price CU 175).

139. Price elasticity of demand is -1.8. If price rises by 5%, what is the approximate effect on revenue?

A) Decrease of 4.5%
B) Decrease of 4.0%
C) Decrease of 9.0%
D) Increase of 5.0%

Correct: A difficult Pricing: elasticity and revenue

Demand falls by 1.8 x 5% = 9%. Revenue index = 1.05 x 0.91 = 0.9555, a fall of about 4.5%. If you answered 4.0% you subtracted 5% from 9%. If you answered 9.0% you gave the fall in demand. If you answered an increase of 5% you ignored the fall in demand.

140. Demand is P = 120 - 0.02Q. What price maximises sales revenue?

A) CU 120
B) CU 60
C) CU 30
D) CU 90

Correct: B difficult Pricing: revenue maximising price

MR = 120 - 0.04Q. Revenue is maximised when MR = 0, so Q = 3,000 and P = 120 - 60 = CU 60. If you answered CU 120 you used the intercept. If you answered CU 30 you halved the correct price. If you answered CU 90 you used the mid-point between the intercept and the correct price.

141. An item retails at CU 168 including 20% sales tax. The retailer needs a margin of 30% of the net selling price. What is the retailer's maximum cost price?

A) CU 117.60
B) CU 112.00
C) CU 98.00
D) CU 140.00

Correct: C difficult Pricing: margin and sales tax

Net selling price = 168 / 1.2 = 140. Cost = 140 x 70% = CU 98.00. If you answered CU 117.60 you took 30% off the tax-inclusive price. If you answered CU 112.00 you used a 20% margin. If you answered CU 140.00 you did not deduct the margin.

142. A hotel has 12,000 room-nights available a year, an average room rate of CU 90, variable cost of CU 18 per night and fixed costs of CU 600,000. What occupancy is needed to break even?

A) 55.6%
B) 20.0%
C) 69.4%
D) 83.3%

Correct: C difficult Pricing: capacity and occupancy

Contribution = 72 a night. Breakeven nights = 600,000 / 72 = 8,333, which is 69.4% of 12,000. If you answered 55.6% you divided by the price. If you answered 20.0% you gave the variable cost ratio. If you answered 83.3% you used 10,000 nights.

143. Which TWO statements are correct? (1) Demand is elastic when the percentage change in quantity exceeds the percentage change in price. (2) When demand is inelastic, a price rise increases revenue. (3) When demand is elastic, a price rise increases revenue. (4) An elasticity of -0.4 means demand is elastic.

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

Correct: B difficult Pricing: elasticity principles

Elastic demand responds more than proportionately, and with inelastic demand revenue rises with price. With elastic demand revenue falls when price rises, and -0.4 is inelastic. If you chose (3) you reversed the effect on revenue. If you chose (4) you treated a value below 1 as elastic.

144. A product uses materials of CU 24 and 3 labour hours at CU 12. Overhead is absorbed at CU 8 per labour hour. The price is full cost plus a 40% mark-up. What is the price?

A) CU 84.00
B) CU 140.00
C) CU 117.60
D) CU 93.60

Correct: C difficult Pricing: full cost-plus

Full cost = 24 + 36 + 24 = 84. Price = 84 x 1.40 = CU 117.60. If you answered CU 84.00 you applied the mark-up to prime cost (60) only. If you answered CU 140.00 you treated 40% as a margin on price. If you answered CU 93.60 you applied the mark-up to materials only.

145. A new product has variable cost CU 40. Skimming sells 5,000 units at CU 120 in year 1 and 12,000 at CU 90 in year 2. Penetration sells 15,000 units a year at CU 70 for the two years. What is the difference in total contribution?

A) Penetration higher by CU 100,000
B) Skimming higher by CU 400,000
C) Skimming higher by CU 1,000,000
D) Skimming higher by CU 100,000

Correct: D difficult Pricing: skimming v penetration

Skimming: 5,000 x 80 + 12,000 x 50 = 1,000,000. Penetration: 30,000 x 30 = 900,000. Skimming is CU 100,000 higher. If you answered penetration higher you reversed the comparison. If you answered CU 400,000 you gave year 1 skimming contribution. If you answered CU 1,000,000 you gave the skimming contribution, not the difference.

146. A consultancy has 5 consultants, each charging 1,400 hours a year. Costs are CU 560,000 and the firm wants profit of 15% of fees. What is the hourly rate, to the nearest cent?

A) CU 80.00
B) CU 94.12
C) CU 92.00
D) CU 85.00

Correct: B difficult Pricing: hourly rate

Fees needed = 560,000 / 0.85 = 658,824. Rate = 658,824 / 7,000 = CU 94.12. If you answered CU 80.00 you ignored profit. If you answered CU 92.00 you applied a 15% mark-up. If you answered CU 85.00 you deducted 15% from the rate rather than grossing up.

147. Division A charges Division B a two-part price: CU 18 per unit (variable cost) plus a fixed annual fee of CU 120,000. B takes 12,000 units. What is the effective price per unit?

A) CU 28
B) CU 18
C) CU 10
D) CU 138

Correct: A difficult Transfer pricing: two-part tariff

Fixed fee per unit = 120,000 / 12,000 = 10. Effective price = 18 + 10 = CU 28. If you answered CU 18 you ignored the fee. If you answered CU 10 you gave the fee per unit only. If you answered CU 138 you added the fee to the unit price in total.

148. A product sells at CU 100 with a cost of CU 70 (30% margin). Costs rise by 6% and the price is unchanged. What is the new margin on selling price?

A) 24.0%
B) 30.0%
C) 4.2%
D) 25.8%

Correct: D difficult Pricing: effect of cost change on margin

New cost = 70 x 1.06 = 74.20. Margin = 100 - 74.20 = CU 25.80, or 25.8%. If you answered 24.0% you subtracted 6 points from 30%. If you answered 30.0% you assumed no change. If you answered 4.2% you gave the cost increase in currency.

149. Which TWO statements about pricing methods are correct? (1) Full cost-plus pricing recovers all costs only if the budgeted volume is achieved. (2) Marginal cost-plus pricing adds a mark-up to variable cost. (3) Cost-plus pricing is driven by customer demand. (4) Market-based pricing ignores competitors' prices.

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

Correct: A difficult Pricing: cost-based and market-based

Full cost-plus depends on volume to recover fixed costs, and marginal cost-plus uses variable cost as the base. Cost-plus is cost-driven, and market-based pricing responds to competitors. If you chose (3) you thought cost-plus is demand-led. If you chose (4) you reversed market-based pricing.

150. A list price of CU 80 gets a 12% discount on the whole order for orders of 1,000 units or more. What does a customer pay for 1,200 units?

A) CU 94,080
B) CU 96,000
C) CU 11,520
D) CU 84,480

Correct: D difficult Pricing: quantity discounts

The discount applies to all units: 1,200 x 80 x 0.88 = CU 84,480. If you answered CU 94,080 you discounted only the units above 1,000. If you answered CU 96,000 you gave no discount. If you answered CU 11,520 you gave the discount only.