Tutorial 7: Price

Question 1
Delicious Heritage is a company that produces ready- to- eat foods products. Currently, it is
developing a new packed fried rice to cater for Malaysia travellers who want to enjoy local food when
they are in foreign countries. The company’s fixed costs are RM8,000 and the variable cost is RM5.

a) If the expected sales are 20,000 units, calculate the cost per unit. (4 marks)

b) If they want to earn a 40 percent mark-up on sales, what is the company’s mark-up price?
(3 marks)

c) If the company set the price at RM12, what would be the break-even quantity?
(4 marks)

Question 2
Ramlee Fried Chicken (RFC) plan to introduce their new value meal “Double Spicy Fried Chicken”.
In order to produce their new meal, their fixed cost (including marketing cost) will increased by
RM10,000. The variable cost for each meal is RM8, and the expected sales for this meal will be
20,000 units.

(a) Name TWO (2) pricing strategies that can be adopted by RFC for their new menu.
(2 marks)

(b) If they want to earn a 35 percent markup on sales, what is the selling price of each value
meal? Round the answer to two decimal places (8 marks)

(c) If RFC sells this new meal at price RM15.00, what would be the break-even? Give your
answer in quantity and also in RM. Round the answer to two decimal places.
(4 marks)
MCQ

1. Price is the only element in the marketing mix that produces ________.

A) revenue
B) variable costs
C) expenses
D) outfixed costs

2. Consumer perceptions of the product's value set the ________ for prices.
A) demand curve
B) floor
C) ceiling
D) variable cost

3. Product costs set a(n) ________ to a product's price.

A) demand curve
B) floor
C) ceiling
D) break-even cost

4. When McDonald's and other fast food restaurants offer "value menu" items at surprisingly
low prices, they are using ________.
A) break-even pricing
B) target profit pricing
C) good-value pricing
D) bundling

5. Total fixed costs ________ as the number of units produced increases.

A) decrease
B) increase
C) divide in half
D) remain the same

6. Costs that vary directly with the level of production are referred to as ________.
A) fixed costs
B) variable costs
C) target costs
D) total costs

7. Mach 3 razor blades must be used in the Mach 3 razor. Which type of pricing is being used?
A) product line pricing
B) optional product pricing
C) captive product pricing
D) by-product pricing

8. Zalora has just introduced a new line of fashion dresses for teens. It will initially enter the
market at high prices in a ________ pricing strategy.
A) market-penetration
B) market-skimming
C) competitive market
D) psychological

9. IKEA slashed its prices in China to the lowest in the world. This is an example of a
_____________.
A) market-skimming pricing
B) market-penetration pricing
C) new-product pricing
D) discount pricing

10. Which of the following conditions would NOT support the use of a market-penetration
pricing strategy?
A) The market is highly price sensitive.
B) Production and distribution costs will fall as sales volume increases.
C) The product's quality and image support a high price.
D) A low price would help keep out the competition.

Structure question

1. List and explain any FOUR (4) price adjustment strategies. (4 marks)