MGTA02H3 Chapter Notes - Chapter 4: University Of Toronto Scarborough, Break Even, Variable Cost
University Of Toronto Scarborough (UTSC) Date: January 29, 2017
Course: MGTA02 (Winter)
Professor: Chris Bovaird
Shahriyar Safavi
Week 4 – Pricing Strategies & Break Even Analysis
Terminology
1. Market Price: At any particular time, the prevailing price to which buyers and sellers
agree.
2. Cost of Sales/Cost of Goods Sold: The cost of the ingredients, parts, and materials that
go directly into making a product.
3. Variable cost: Costs that increase in direct proportion to every additional unit of
product that is made.
4. Operating Cost/Operating Expense: The cost of operating a business organization.
5. Fixed Costs: The costs of operating the business, which do not change as the volume of
production increases.
6. Markup: The amount that a business adds to the variable cost of making a product, in
order to set its selling price.
7. Contribution Margin: The markup expressed as the percentage of the selling price.
8. Skimming: The strategy of charging a high price, expecting a small volume of sales, but
making a large contribution from each.
9. Price sensitivity: The degree to which the price of a product affects consumers’
willingness to buy.
10. Penetration Pricing: The strategy of charging a low price, and relying on a large volume
of sales, making a small contribution from each.
11. Break even analysis: A tool that helps managers understand the relationship between
their costs, their chosen price, and the number of units that the business must sell in
order to make a profit.
12. Break even quantity: The minimum number of units a business must sell in order to
recover all costs and begin to make profit.
13. Psychological Pricing: A range of tactics designed to appeal to consumers’ emotions.
14. Odd-Even Pricing: A strategy of setting the price of a product just below the whole
dollar amount.
15. Bundle Pricing: Packaging several products together and offering the combined package
a single price that is less than the sum of the parts.
16. Total costs: The accumulation of variable cost and fixed costs of a business.
Pricing Strategies
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