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HRITIIBIR UFIIVERSITY

0F SCIEITCE FII'ID TECHNOLOGY

FACULTY OF MANAGEMENT SCIENCES

DEPARTMENT OF MARKETING AND LOGISTICS

QUALIFICATION: BACHELOR OF MARKETING

QUALIFICATION CODE: 07BMAR LEVEL: 7

COURSE CODE: PPM712$ COURSE NAME: PRODUCT PRICING MANAGEMENT

SESSION: NOVEMBER 2017 PAPER: THEORY

DURATION: 3 HOURS MARKS: 100

FIRST OPPORTUNITY EXAMINATION QUESTION PAPER

EXAMINER(S) MR. C. KAZONDOVI

MR. I. MUBWANDARIKWA

MODERATOR: MR. A. M. MATONGELA

INSTRUCTIONS

Answer ALL the questions.

Write clearly and neatly.

Number the answers clearly.PWP!‘ Use the tables provided on page [6] to answer Questions 5 & 6:

Detach and insert into your answer booklet

Write as legible as possible, and as precise as possible

Indicate your class Iecturer’s name on your answer sheet

Read each question carefully

Use a non-programmable calculator (STRICTLY NO USE OF

CELLPHONE/MOBILE CALCULATOR)

9°.\’.°‘.U‘THIS QUESTION PAPER CONSISTS OF 6 PAGES (Including this front page)

Question 1 [30 marks]

Costs are important to consider in many industries. Many firms have closed down because their

costs were too high relative the product or service price to make a profit. Cost estimation is an

attempt to measure costs to find if a profit can be made at the prevailing market price. You as a

Marketing Manager for your company have been tasked to calculate the various types of costs

that affect your business using the data provided in the Table 1. Show all formulas and

calculations/workings in completing Table 1.

Table 1

Total cost data per week Average cost data per week

1 2 3 4 5 6 7 8

Total Total Total Total Average Average Average Marginal

product fixed variable cost fixed variable total cost

cost cost cost cost cost

0 N$100 N$0 ? ? ? ? ?

1 N$100 N$90 ? ? ? ? ?

2 N$1OO N$170 ? ? ? ? ?

3 N$100 N$24O ? ? ? ? ?

4 N$100 N$300 ? ? ? ? ?

5 N$1OO N$370 ? ? ? ? ?

6 N$100 N$450 ? ? ? ? ?

7 N$1OO N$540 ? ? ? ? ?

8 N$1OO N$650 ? ? ? ? ?

9 N$100 N$780 ? ? ? ? ?

10 N$1OO N$930 ? ? ? ? ?

Question 2 [10 marks]A common and fairly simple technique to investigate the profit/volume/cost relationship is the

break-even analysis. You are an appliance manufacturer in Namibia and you want to sell a

battery charger at N$26. Assume that your unit variable costs are N$1O per unit and fixed costs

are N$ 500 000.

2.1 You are required to calculate the break-even point. Show all workings as marks accumulate

in the workings. (5 marks)2.2 Draw a break even chart showing the position of your answer in 2.1. (5 marks)

Question 3 [10 marks]Initiating price cuts can be a very dangerous activity. Any organization considering such a move

needs to carefully consider the likely impact of any changes on both customers and competitors.You are a Manager in a business with a gross profit of 20% on its sales, which reduces its priceby 5%. Using the following assumption:

Before price cut:

Gross profit = Total sales — Total costs

(Assumption N$20) = 100 units (N$1 each) — 100 units (800ents) each

3.1 Calculate the price cut. Show all workings as marks are accumulate in the workings.(10 marks)

Question 4 [20 marks]

4.1 Neal Wall bought a computer from A.C. Suppliers for N$1,200. Neal plans to resell the

computer for N$1,800. What is Neal Wall's dollar markup and his percent markup on cost?

(2 marks)

4.2 Fred Miguel bought rings for his jewelry shop that cost N$90 each. Fred must mark up each

ring 40% on cost. What is the dollar markup? What is the selling price of each ring?

(2marks)

4.3 Alice Rone sells watches. Her competitor sells a new line of watches for N$30 each. Alice

needs a 30% markup on cost to make her desired profit, and she must meet price

competition. What cost can Alice afford to bring these watches into the store? (2marks)

4.4 Neal Wall bought a computer from A.C. Suppliers for N$1,200. Neal plans to resell the

computer for N$1,800. What is Neal Wall's dollar markup on selling price? (Round to the

nearest tenth percent.) (2marks)

4.5 Fred Miguel bought rings for his jewelry shop that cost N$90 each. Fred must mark up each

ring 40% on selling price. What is the selling price of each ring? What is the dollar markup?(2marks)

4.6 Alice Rone sells watches. Her competitor sells a new line of watches for N$30 each. Alice

needs a 30% markup on selling price to make her desired profit, and she must meet price

competition. What cost can Alice afford to bring these watches into the store? What is the

dollar mark-up? (2marks)

4.7 Pete Burrows sells hammers for N$14 that cost N$8. What is Pete's percent markup at cost?

(Round to the nearest tenth percent.) What is Pete's percent markup on selling price?

(Round to the nearest hundredth percent.) (2marks)

4.8 Staples bought and office desk for N$400 and marked up 30% on selling price to promotecustomer interest. Staples marked the desk down 5% for one week. After a week, Staplesmarked the desk up 2%. The last week it marked it down 8%. What is the final selling price?

(2marks)

4.9 Joe Kim owns a bakery. Joe baked 40 dozen fat cakes. Joe expects a 20% spoilage rate.

The fat cakes cost N$1.10 per dozen. Joe wants a 70% markup on cost. What should Joe

charge for each dozen bagels? (Round to the nearest cent.) (2marks)

4.10 Jane corporation produces Sweatshirts for a selling price of N$19.25. Their variable cost

is $13.10. Assuming a fixed cost of N$6,150 what is Jane corporation's break-even point?(2 marks)

Question 5 [15 marks]True or False Questions

Use the table provided on [page 6] to answer these questions, detach and insert it into your

answer booklet. 1.5 mark will be awarded for each correct answer.

5.1 Operating expenses are the unusual expense of doing business.

5.2 When markups are based on cost the selling price is 100 percent.

5.3 When markup is based on selling price the cost is 100 percent.

5.4 Selling price times one minus markup percent on selling price will equal the cost if markup is

based on selling price.

5.5 Break-even point and contribution margin are the same.

5.6 Executives often complain that pricing is a big headache. One of the common mistakes made

are: Price is not revised often enough to capitalize on market changes; price is set

independently of the rest of the marketing mix rather than an intrinsic element of a marketing-

positioning strategy.

5.7 Purchase decisions are based on how consumers perceive prices and what they consider to

be the current sale price —not the marketer’s stated price.

5.8 The definition of everyday low price is: In considering an observed price, consumers often

compare it to an internal memory reference price or an external frame of reference (such as

a posted ”regular retail price").

5.9 Many consumers use price as an indicator of status. Image pricing is especially effective with

ego—sensitive products such as perfumes and expensive cars.

5.10 In market-penetration pricing, the company's objective in pricing is to maximize their market

share believing that higher sales volume will lead to lower unit costs and higher long—runprofits.

Question 6

Multiple choice questions [15 marks]

Choose the correct answer and use the table provided on [page 7] to answer these questions,detach and insert it into your answer booklet. 1.5 marks will be awarded for each correct answer.

6.1 Net income is calculated as:

A) Net sales + costs - operating expenses

B) Net sales - costs — operating expenses

C) Net sales + costs + operating expenses

D) Net sales - costs + operating expenses

E) None of the above

6.2 If Moore Motors buys at cost a truck for N$4,000 and plans to sell it for N$6,000, the percentmarkup on cost is:

A) 33 1/3 percent

B) 40 percent

C) 50 percent

D) 60 percent

E) None of the above

6.3 If percent markup on cost and selling price is known one is able to compute the:

A) Amount of markdown

B) Amount of spoilageC) Cost

D) Selling price at wholesale

E) None of the above

6.4 The markdown percent is calculated by:A) Amount of markdown divided by sale priceB) Amount of markdown divided by original selling priceC) Sale price divided by amount of markdown

D) Original selling price divided by amount of markdown

E) None of the above

6.5 Red Jeans Inc. sells jeans that cost N$16.55 for a selling price of N$35.99. The percent of

markup based on cost is:

A) 117.46 percent

B) 194.44 percent

C) 54.02 percent

D) 37.07 percent

E) None of the above

6.6 Ray Shelf knows his goods are marked up 42 percent on cost. If a T.V. cost Ray N$350, the

selling price would be:

A) N$479.00

B) N$603.44

C) N$630.40

D) N$ 497.00

E) None of the above

6.7 Doc bought a cellphone for N$1,250. Doc wants to markup the phone at 60 percent of the

selling price. The selling price of the phone should be:

A) N$2,000

B) N$2,900

C) N$3,125

D) N$3,521

E) None of the above

6.8 Mr. Biggy Smalls, store manager for Jay's Appliance, is having a difficult time placing a

selling price on a refrigerator that cost N$410. Mr. Small knows his boss would like to have a

45 percent markup based on cost. The selling price should be:

A) N$594.50

B) N$754.54

C) N$549.5O

D) N$745.45

E) None of the above

6.9 A dress was originally selling for $150. Due to changing styles the 1st markdown was 10

percent and the second markdown 20 percent. The dress still did not sell so a final

markdown of 5 percent was taken. The sale price is currently:A) $112.50

B) $102.60

C) $135.00

D) $105.00

E) None of the above

6.10 Jackie Smith, a customer of Roger Blank, will only pay $190 for a tennis racket. AssumingRoger works on a 60 percent markup on the selling price, the most Roger will pay the

manufacturer is:

A) $77

B) $78

C) $79

D) $141

E) None of the above THE END

SECTION A: ANSWER SHEET

Question 5 ['l‘otal: 10 X 1.5 = 15 Marks]

True False

5.1

5.2

5.3

5.4

5.5

5.6

5.7

5.8

5.9

5.10

Question 6

['l'otal: 10 X 1.5 = 15 Marks]

D

6.1

6.2

6.3

6.4

6.5

6.6

6.7

6.8

6.9

6.10

STUDENT NAME & STUDENT NO: