C1000-119 Exam Questions and Answers

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NEW QUESTION: 1
The following data apply to one item sold by a large retailer:

Purchase price US $ 4.95 Using the contribution approach to pricing, which of the following prices is the lowest that can be charged in the short run?
A. US $5.00
B. US $7.00
C. US $9.50
D. US $8.00
Answer: D
Explanation:
In the short run, the fixed costs are sunk costs. They will be incurred whether or not the item is produced. Accordingly the retailer will suffer no additional loss if the price charged covers the incremental costs, which are the variable costs in this case. The lowest feasible price is the one that provides a zero but not a negative) contribution margin revenue -variable costs). Thus, the lowest short-run price is the unit variable cost US $4.95
+ $2.00 + $1.00 = US$7.95). The lowest price provided in the answer choices that will recover the unit variable cost is US $8.00.


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