Chapter 1, Problem 17.5EC

the margin of safety is the reduction in sales that can occur before the break-even point is reached. It measures the cushion that a particular level of sales can decline without incurring a loss. Discuss two limitations of relying on a margin of safety when predicting future sales. Is it reliable? Why or why not? Provide support for rationale.

Consider a company faced with a​ competitor's price reduction. Should the company also reduce price in order to maintain market share or should the company maintain its current​ price? The company has conducted some preliminary research showing the financial outcomes of each decision under two competitor​ responses: the competition maintains its price or the competition lowers its price further. The company feels pretty confident that the competitor cannot lower its price further and assigns that outcome a probability ​(p​) of 0.7​, which means the other outcome would have only a 30 percent chance of occurring ​(1-p=0.3​). These outcomes are shown in the table​ below:Competitive ResponseCompany action Maintain Price, p=0.7 Reduce Price, (1-p)=0.3Reduce Price $155,000 $125,000Maintain Price $165,000 $95,000What is the expected value of perfect information ​(EMV Subscript PI​)? Should the research be​ conducted? Assume that conducting more research costs ​$15,000.

Did TTW increase unit sales by cutting prices or by using some other strategy?

Which of the following statements is not correct? Multiple Choice   Price discrimination is the practice of selling identical goods or services to different customers at different prices.   Peak-load pricing is the practice of setting prices highest when the quantity demanded for the product approaches the physical capacity to produce it.   Price fixing is a particular legal and ethical problem because it is not universally illegal.   Dumping is the practice of setting the selling price of a product at a low price with the intent of driving competitors out of the market or creating a barrier to entry for new competitors.

Samsung must confront sunk costs. Why are sunk costs irrelevant in deciding whether to sell a product in its present condition or to make it into a new product through additional processing?

Which of the following is not an advantageous reason to reduce inventories? a. Inventories provide a competitive advantage. b. Inventories can invite overproduction. c. Inventories are expensive to maintain. d. Inventories may conceal problems. e. All of these are good reasons to reduce inventories.

Lowering price does not always increase revenue with increased demand. Besides reducing price, what else can a firm do to stimulate demand for its product?

Does your current/future company price discriminate? Explain how the practice works (direct or indirect) and estimate the profit consequences of price discrimination relative to charging a single, uniform price. If your current/future company doesn't price discriminate, are there opportunities to do so? How would you design the price discrimination?

Which of the following is NOT a use of CVP (Cost-Volume-Profit) analysis? a.what is the impact on the break-even point of an increase or decrease in fixed costs b.how many units must be sold to break even c.the identification of price and efficiency variances d.the ability to conduct sensitivity analysis of cost or price changes