When the Management Team Noted the Increased Interest in Bikes

question 20

Multiple Choice

When the management team noted the increased interest in bikes as a mode of commuting,bicycle manufacturer Sensta introduced utility bikes aimed at the urban commuter.In which of the following cases is the company following a multiple-segment pricing strategy?

• A)Sensta entered the market with a bike priced at $2,500,and later,as more competitors entered the market,reduced the price to $1,000.
• B)As the market for bikes in a particular city became saturated,Sensta raised the prices of its bikes hoping to gain maximum profit before exiting the market.
• C)With several competitors with similar product features in the utility bike market,Sensta concentrated on the sturdiness of its bikes,and raised the price of the basic model from $500 to $1,000.
• D)Sensta manufactures a basic model priced at $500,a bike with more features,priced at $1,500 and a deluxe model priced at $3,000.
• E)When Sensta entered the market,there were already competitors in the $1,000-$2,000 price range.Sensta introduced three bike models in the $500-$700 price range in order to capture market share,and later raised the prices of its products.

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Definitions:

Absorption Costing

A technique in cost accounting that incorporates all costs of production, including fixed and variable, into the valuation of inventory and cost of goods sold.

Variable Costing

An accounting method that includes only variable production costs as product costs, treating fixed manufacturing overhead as an expense of the period in which it is incurred.

Unit Product Cost

The total cost associated with producing a single unit of a product, including direct materials, direct labor, and allocated overhead.

Absorption Costing

A method of inventory costing that includes all manufacturing costs, both variable and fixed, in the cost of a finished product.