Small Business Management BA 313-01
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Pricing and Credit Decisions - Review

<< Back to Pricing and Credit Decisions - Chapter 15

1) The seller's measure of what he or she is willing to receie in exchange for transfering ownership or use of a product or service is called "price".

2) The total sales revenue of a small business is a direct reflection of sales volume and price.

3) Pricing and credit decisions are vital to small businesses because they affect both revenues and cash flow.

4) Sound pricing practices begin with knowing product costs.

5) A business will not be successful unless it charges a price for its products that covers its total cost and some margin of profit.

6) Pricing at less than total cost can be sustained only over the short term, and even then, this will work only under certain circumstances.

8) Costs incurred by a firm in actually producing a product (e.g., materials, machinery, etc.) are considered to be part of "costs of goods sold".

7) The competitive advantage of a firm will affect consumers' demand for its product.

8) In general, items that are consumed in fixed amounts have inelastic demand.

9) In general, items that are consumed in different amounts have elastic demand.

10) A pricing tactic whereby a firm sets a high price to convey the image of high quality or uniqueness is known as prestige pricing.

11) An entrepreneur is using break-even analysis when he systematically compares various cost and revenue estimates in order to determine the acceptibility of alternative prices.

12) When customers know very little about product characteristics, they often use price as an indicator of quality.

13) A comprehensive break-even analysis entails examining revenue-cost relationships and establishing sales forcasts.

14) The objective for examining cost and revenue relationships for break-even analysis is to determine the quanity at which a product, with an assumed price, will generate enough revenue to start earning a profit.

15) Markup pricing may be expressed in terms of either selling price or the cost.

16) You should use markup pricing if you must cover operting expenses, subsequent price reductions, and achieve a desired profit level.

17) If you sell your product for $180 and your pricing is based on a 35% markup of COST, Your product cost is approximately $133. Use the book formula and verify this.

18) If you sell your widgets at a price of $35 each and your pricing is based on a 40% markup of SELLING PRICE, the cost of each widget is $21. Use the book formula to verify this.

19) Pentration pricing strategy sets lower than normal, long-range market prices in order to gain more rapid market acceptance or to increase market share or to discourage new competitors' entry into the market.

20) A skimming price is most practical when there is little threat of short-term competition in the market or when startup costs must be recovered rapidly.

21) A small business in competition with larger firms is seldom in a position to function as a price leader.

22) Setting prices for products or services using a particular competitor competitor as a model of reference is known as a follow-the-leader pricing strategy.

23) A price-lining strategy determines several distinct prices at which similar items or retail merchandise are offered for sell.

24) The policy of pricing on the basis of what the traffic will bear will work only for nonstandardized products in markets in which there is little or no competition.

25) Dynamic pricing refers to a practice of setting prices higher after gauging a customer's financial means and desire for the product or service.

26) Under certain circumstances, local state, and federal laws must be considered in setting prices in a small business.

27) When a small business markets a line of products, some of which may compete with another, pricing decisions must take into account the effects of a single product price on the rest of the line.

28) Continual price adjustments can be both costly to the seller and confusing to buyers.

29) Systems of discounts are often used to adjust prices to meet a variety of market needs.

30) The major objective of credit is to increase (expand) sales.

31) Benefits of credit to sellers include creating a closer asociation with the customers, smoothing out sales peaks and valleys, and providing a tool for competitive advantage.

32) Credit sales increase the amount of working capital needed by a business doing the selling.

33) Benefits of credit to buyers include the satisfying of immediate needs and paying for them later, better record of purchases, easier exchange of purchased items, and establishment of a credit history.

34) Trade credit is extended by nonfinancial firms (e.g., manufacturers and wholesalers) to other businesses that are also consumers of the firm's products/services.

35) With an open charge acccount, the consumer obtains possession of goods and services when they are purchased, with payment due when billed at a later date.

36) An installment account is a vehicle for long-term consumer credit.

37) Bank credit cards are widely accepted by retailors who desire to offer credit but do not have their own credit cards.

38) A down payment is normally required for an installment purchase.

39) Charged purchases may not exceed the credit limit on revolving charge accounts.

40) Credit cards are usually based on a revolving account system.

41) In many lines of busines, trade credit terms are so firmly set by tradition that a unique policy is dificult for a small business to implement.

42) Credit management should precede the first credit sale, starting with the initial screening of credit applicants.

43) An important source of credit information is the customer's previous credit history.

44) The basic types of credit cards include entertainment, retailor, and bank cards.

45) Major steps in a formal, comprehensive credit management system for a small business include, evaluating the credit of applicants, establishing effective billing and collection procedures, and aging accounts receivable.

46) A good source of consumer credit information is credit bureaus.

47) Trade-credit agencies collect credit information on business firms, but not consumers.

48) The Equal Credit Opportunity Act ensures that all consumers are given an equal chance to obtain credit.

49) The Consumer Credit Protection Act requires that the finance charge for credit be stated as an annual percentage rate and that creditors specify the procedures used to correct billing mistakes.

50) Acceptable options available to entrepreneurs attempting to collect delinquent accounts are written reminders, personal contacts and referrals to collection agencies or attorneys.

51) Slow-paying crdit accounts tie up the seller's working capital.

52) Credit bureaus collect credit information and offer it only to member businesses.

53) Factors an entrepreneur would use to decide whether to sell on credit include the type of business, customers income levels and availability of working capital.

54) The aging schedule is a categorization of accounts receivable based on the length of time they have been outstanding.

55) The five "Cs" of credit are character, capital, capacity collateral, and conditions.

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