Pearl Pasha Products Limited manufactures budget trainers. The company’s directors have decided to apply cost base pricing to a new range of trainers which will be manufactured at one of the company’s smaller factories.
Variable costs of producing a pair of trainers are:
£
Direct materials
9.60
Direct labour
4.45
Other variable costs
0.25
14.30
Fixed production overheads are estimated at £334 800 for the coming year. Total machine hours available are 45 000 and each pair of trainers used 0.5 machine hours.
Which of the following statements is correct?
Demand is described by economists as elastic where demand for the product is insensitive to price
Demand is described by economists as elastic where customers are relatively indifferent to the product
Demand is described by economists as elastic where prices can rise substantially without affecting demand
Demand is described by economists as elastic where customers place a high value on the product
Which of the following statements is correct?
Oligopoly exists where there are few suppliers in the market for the supply of a particular good or service
Cartels lead to increased competitiveness in the market for a particular product
Oligopolistic market conditions usually result in keen price competition
Monopolistic market conditions are usually regarded as helpful to competition by regulators
Assuming that the company requires a profit mark-up of 22% on total cost, what is the cost-plus selling price per pair of trainers (to the nearest penny)?
£21.98
£17.45
£26.52
£21.17
Assuming the company requires a profit mark-up of 36% on variable cost, what is the variable cost plus selling price of a pair of trainers (to nearest penny)?
£18.09
£24.51
£19.44
£29.57
Which of the following statements is incorrect?
Target pricing involves establishing a price by reference to what the market will bear
Target pricing is only possible where a virtual monopoly for a product exists
Target pricing may require severe cost-reduction programmes
Target pricing may involve increasing production volumes so as to reduce unit costs