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Supplementary objective test questions
CHAPTER 8 – THE PRICING DECISION
8.1 A company is launching a new product. Market research shows that if the
selling price of the product is $98, then demand will be 350 units, but for every
$12 increase in selling price there will be a corresponding decrease in demand
of 175 units, and for every $12 decrease in selling price there will be a
corresponding increase in demand of 175 units. The estimated variable costs of
the product are $35 per unit. There are no specific fixed costs, but general fixed
costs are absorbed, using an absorption rate of $8 per unit.
The selling price at which profit is maximised is $_________________
8.2 Which ONE of the following statements on the advantages of cost plus
pricing is true?
A Cost-plus pricing takes account of price elasticity of demand
B Cost-plus pricing is useful in the construction industry where fixed costs
are low relative to variable costs
C By setting prices based on expected volumes, the company can be sure of
recovering all production overheads
D Cost-plus pricing provides flexibility during the different stages of a
product’s life cycle
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