Marketing Final Exam

Of several products in a product line pts 1 ref 332

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Unformatted text preview: in a product line. PTS: 1 REF: 332 Thinking KEY: CB&E Model Pricing OBJ: 20-4 TOP: AACSB Reflective MSC: BLOOMS Application 97. Alissa Dunn is the owner and operator of Dunn’s Best Jams, which she sells at craft festivals. She only makes and sells three types of jams––pecan pie jam, chocolate pie jam, and lemon tart jam. The costs of leasing her professional kitchen for manufacturing, travel to craft shows, insurance, and so on are allocated on an equal basis to the three types of jam sold. In other words, these costs are: a. derived costs b. elastic costs c. joint costs d. revenue impediments e. synergistic costs ANS: C Joint costs are costs that are shared in the manufacturing and marketing of several products in a product line. PTS: 1 REF: 332 Thinking KEY: CB&E Model Pricing OBJ: 20-4 TOP: AACSB Reflective MSC: BLOOMS Application 98. Which of the following factors can a manager IGNORE when deciding on prices for an entire product line? a. b. c. d. e. Products in the line could be substitutes for one another. Buyer considers the brand or the price first. Products share joint costs. Products will affect demand for the other products in the line. Products in the line are complementary to one another. ANS: B The manager is trying to determine the relationships between the various products in the line and is looking at the products, not the buyer. PTS: 1 REF: 332 Thinking KEY: CB&E Model Pricing OBJ: 20-4 TOP: AACSB Reflective MSC: BLOOMS Analysis 99. Kule, Inc. produces three different lines of car racks for transporting large, bulky items. Bicycle Luggage Skis Sales $140,000 $100,000 $160,000 Less cost of goods 110,000 110,000 140,000 sold Gross margin 30,000 (10,000) 20,000 Total company net annual profit = $40,000 Included in the cost of goods sold is $12,000 of annual rent (a fixed cost) that is distributed equally among the three product lines. As a consultant to Kule, will you recommend that it drop the luggage rack line? a. No, dropping the line will actually decrease overall net profits. b. Yes, dropping the line will increase company net profits. c. No, dropping the line will result in increased fixed costs. d. Yes, dropping the line will reduce joint costs. e. Yes, dropping the line will reduce cost of goods sold and increase revenues. ANS: B Current net profit is $40,000. Dropping the luggage rack line will increase profit by $10,000 initially, but the fixed rent costs ($4,000) that are being covered by that line will have to be distributed to the other two lines. That means the cost of goods sold for each remaining line will increase by $2,000 (or $4,000 ÷ 2). Cost of goods sold for the Bicycle line will increase to 112,000, resulting in profit of $28,000; cost of goods sold for the Ski line will increase to 142,000, resulting in a profit of $18,000. Total profit will be $46,000, or $6,000 more than if the company kept the Luggage line. Therefore, Kule should drop the line. PTS: 1 REF: 332 KEY: CB&E Model Pricing...
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