POLYTECHNIC OF NAMIBIA SCHOOL OF MANAGEMENT SCIENCES DEPARTMENT OF MARKETING & LOGISTICS BACHELOR OF MARKETING (07BMAR) PRODUCT PRICING MANAGEMENT

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1 POLYTECHNIC OF NAMIBIA SCHOOL OF MANAGEMENT SCIENCES DEPARTMENT OF MARKETING & LOGISTICS BACHELOR OF MARKETING (07BMAR) PRODUCT PRICING MANAGEMENT SUBJECT CODE: PPM712S NQF LEVEL: 7 DATE: NOVEMBER 2015 DURATION: 3 Hours MARKS: 100 EXAMINER: MODERATOR: MR. I. MUBWANDARIKWA MR. ALBERT MUTONGA MATONGELA 1 ST OPPORTUNITY EXAMINATION QUESTION PAPER (This paper consists of 7 pages including this front page) INSTRUCTIONS This paper consists of two (2) sections (A & B) Answer ALL questions Write as legible as possible, and as precise as possible Read each question carefully Allocate your time appropriately Use a non-programmable calculator (STRICTLY NO USE OF CELLPHONE/MOBILE CALCULATOR) Use the tables provided on [page 7] to answer the questions for Section A, detach and attach to your answer sheets GOOD LUCK! 1 P age

2 SECTION A [20 MARKS] QUESTION 1: True or False (10 Marks) 1.1 Price is the value exchange for products in marketing exchange. 1.2 The nature of price is that it is not the most unchangeable characteristic of a product. 1.3 Internal reference price is largely based upon the actual experience the consumer has with the product. 1.4 Profit Maximisation means setting prices so that total revenue is not as large as possible relative to total cost. 1.5 Elasticity ca be measured by observing changes in total revenue, if price goes down and revenue goes up, demand is inelastic. 1.6 Tactical pricing is acting to influence future customer behaviour, whereas strategic pricing is reacting to past customer behaviour. 1.7 Profit maximization occurs when marginal revenue equals marginal cost. 1.8 Pricing policy mitigates cost associated with ad-hoc discounting. 1.9 Skimming is a strategy used to pursue the objective of profit margin maximization Segmenting by tie-ins is an explicit and implicit requirement that buyers of an asset purchase consumables used with the asset only from the seller. 2 P age

3 QUESTION 2: Multiple Choice (10 Marks) 2.1 is pricing a product based on the value the product has for the customer and not on its costs of production or any other factor. a) Target pricing business b) Price discrimination c) Time-based pricing d) Value-based pricing e) Variable pricing 2.2 Elasticity can be measured by observing these changes in total revenue, if price goes up and revenue goes down, demand is. a) inelastic b) unitary c) elastic d) marginal e) break-even 2.3 measures the overall effectiveness of management in generating profits with its available assets. a) Satisfactory profits as pricing objective b) Sales oriented objectives c) Profit Maximisation as pricing objective d) Status-quo objectives e) Target return on investment 2.4 is the difference between the cost of bringing the goods into the store and the selling price of the goods. a) Selling price b) Mark-up c) Operating expenses d) Net income e) 2.5 Price setting information needs include the following, except a) an analysis of product costs. b) expected profit levels. c) market needs and wants. d) trade centre. e) competition and lead times. 3 Page

4 2.6 Factors that affect elasticity of demand are the following, except a) availability of substitutes b) price relative to purchasing power c) product durability d) preferential value e) rate of inflation 2.7 A minimum price that must be charged to cover costs is the. a) price roof b) price law c) price ceiling d) price wall e) price floor 2.8 is a method of pricing in which all costs are recovered, thus the price of the product includes the variable cost of each item plus a proportionate amount of the fixed costs a) Contribution margin-based pricing b) Absorption pricing c) Creaming or skimming d) Marginal-cost pricing e) High-low pricing 2.9 links discount prices across an organization s entire product range with seasonal event such as Olympics or New Year s Day. a) Price leaders b) Comparison discounts c) Special event pricing d) Regular price e) Pricing as a positioning symbol 2.10 In the cost mix consideration, variable costs expressed in cost per extra unit of production are. a) variable costs b) fixed costs c) shared costs d) marginal costs e) transfer costs 4 P age

5 SECTION B [80 MARKS] Answer all of the following questions. QUESTION 3 [40 Marks] 3.1 (10 Marks) Regmakers CC. buys pens for They plan to sell them for What is Regmakers CC. s mark-up? What is the percent mark-up on cost? 3.2 (10 Marks) Mel s Furniture bought a lamp that cost $100. To make Mel s desired profit, he needs a 65% markup on selling price What is Mel s selling price? What is Mel s dollar markup? 3.3 (10 Marks) Jill Sport, owner of Sports, Inc., sells tennis rackets for $50. To make her desired profit, Jill needs a 40% markup on selling price What is the dollar markup? What do the tennis rackets cost Jill? 3.4 (10 Marks) Assume Jones Company produces pens that have a selling price (S) of $2.00 and a variable cost (VC) of $.80. Calculate the contribution margin? Jones Company produces pens. The company has a fixed cost (FC) of $60,000. Each pen sells for $2.00 with a variable cost (VC) of $.80 per pen. Calculate the breakeven point (BE)? Comment about his profitability from your answer. 5 Page

6 QUESTION 4 (30 Marks) A small manufacturing company in Katutura has enlisted your technical knowledge on cost determinants of price by providing you the following incomplete schedule of their Product A s costs which they require you to complete, in order for the company to make some informed pricing decisions: Table: Product A Schedule (1) Product A (2) Fixed (3) variable cost (4) (5) Average fixed (6) Average variable cost (7) Average total cost (8) Marginal ? ??? ? ?? ? 3 100? ? ??? ?? 74.00? ? ? ? ?? ?? ? ??? 97.78? ? 1030? You are required to calculate all the missing figures. QUESTION 5 (10 marks) Assume that in 2003 Crawfords Cosmetics had assets of 4.5 million, net profits of , and a target ROI of 10 per cent. Calculate the ROI? Compare your answer to the industry s ROI of 10 percent. 6 P age

7 SECTION A: ANSWER SHEET QUESTION 1: True or False [ 10 Marks] TRUE FALSE SECTION A: ANSWER SHEET QUESTION 2: Multiple Choice [ 10 Marks] A B C D E STUDENT NAME: STUDENT NUMBER: 7 P age