8) Rent, electricity, and executive salaries that do not vary with production or

Question

8) Rent, electricity, and executive salaries that do not vary with production or sales level are referred to as A) fixed B) variable C) break-even D) target E) promotional costs 9) Lovely Skin is establishing a pricing strategy for a new moisturizer. The total cost to produce each unit is $3.50. The company has decided to add a $1.50 markup, so the unit price to distributors will be $5. Lovely Skin is using a A) value-added B) good-value C) cost-plus D) competitor-based E) break-even approach to price the new moisturizer.

Explanation / Answer

8) Rent,electricity & executive salaries that don't vary with production or sales level are referred to as fixed costs.

Fixed costs are those costs which don't change with the fluctuations of business activities.With the change in production level rent,electricity & executive salaries don't change.These are fixed. Neither Electricity Control Board charge a high price nor owner of a building charge a high rent for its building.Similarly, executives don't demand a hike in salary with change in production level.

9) Lovely skin is using a cost-plus approach to price the new moisturizer.

Cost-plus pricing is basically used in retail marketing. Based on this cost-plus or mark-up pricing the retailer wants to know what the gross profit margin of each sale will be.Using this approach one can sure that its costs are covered.

cost-plus or mark up price = Selling price - cost of good

In our question cost -plus price =$5 - $3.50 = $1.50   

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