Chapter 10-Short Term Decisions

Imagine Henry, William, and Noah are running a lemonade stand. They are trying to understand their profits. Can you help them understand what a contribution margin is?

• Contribution margin is the difference between total sales revenue and total fixed costs.

• Contribution margin is the difference between total sales revenue and total variable costs.

• Contribution margin is the difference between total costs and total expenses.

• Contribution margin is the difference between total fixed costs and total variable costs.

Scarlett, Oliver, and Mason are having a debate about business costs. Scarlett says, 'Relevant costs are those that are directly affected by a specific decision and will differ among alternatives.' Do you agree with Scarlett's definition of relevant costs?

• Yes, Scarlett is correct. Relevant costs are those that are directly affected by a specific decision and will differ among alternatives.

• No, relevant costs are those that are irrelevant to the decision being made.

• No, relevant costs are those that are fixed and cannot be changed.

• No, relevant costs are those that are not affected by any decision.

Imagine Abigail, Benjamin, and Rohan are running their own lemonade stands. If one of them is a price taker, what does it mean?

• That person only accepts cash as payment for the lemonade.

• That person can negotiate the price of a lemonade with customers.

• That person can set the price of a lemonade.

• That person has no control over the price of a lemonade and must accept the market price as given.

Arjun, Aria, and Sophia are running a lemonade stand and they're trying to figure out their pricing strategy. They come across the concept of 'Target Pricing'. Can you help them understand what it means?

• Target pricing is a pricing strategy where they would set the price of their lemonade based on the cost of lemons and sugar.

• Target pricing is a pricing strategy where they would set the price of their lemonade based on what the other lemonade stands are charging.

• Target pricing is a pricing strategy where they would set the price of their lemonade based on how many people are thirsty that day.

• Target pricing is a pricing strategy where they would set the price of their lemonade based on the profit margin they want to achieve.

Imagine Daniel, Charlotte, and William are running a startup. They are discussing their 'product mix'. What do you think they are referring to?

• The process of mixing different ingredients to create a product

• The combination of products or services that their startup offers to its customers.

• The total number of products their startup has in its inventory

• The marketing strategy they used to promote a single product

Oliver, Abigail, and Evelyn are running a lemonade stand. They want to maximize their profits. Can you help them figure out how to calculate the contribution margin?

• It's the Revenue they earn minus the Variable Costs of lemons and sugar

• It's the Revenue divided by the Variable Costs of lemons and sugar

• It's the Revenue multiplied by the Variable Costs of lemons and sugar

• It's the Revenue added to the Variable Costs of lemons and sugar

Hannah, Aria, and Olivia are running a lemonade stand for a day. They are trying to make a business decision. Which of the following would be a relevant cost they should consider in their short-term decision?

• The cost of the lemonade stand they bought last year (Fixed cost)

• The money they could have made if they had spent the day babysitting instead (Opportunity cost)

• The cost of lemons and sugar they need to buy to make lemonade (Variable cost)

• The money they spent on a banner for the stand that they can't use anymore (Sunk cost)

Imagine Samuel, Priya, and Ava are playing a game of 'Market Masters'. In this game, what would you call a player like Ava who has no influence over the market price and must accept the prevailing price in the market?

• Ava is a market participant who sets the market price.

• Ava is a market participant who can negotiate the market price.

• Ava is a market participant who can manipulate the market price.

• Ava is a market participant who has no influence over the market price and must accept the prevailing price in the market.

Noah, Emma, and Evelyn are starting a lemonade stand and they are trying to determine their target pricing. What factors should they consider?

• Market trends, advertising costs, production capacity, customer preferences, profit margins

• Cost of production, competition, customer demand, pricing objectives, profit margins

• Raw material costs, employee salaries, marketing expenses, customer loyalty, profit margins

• Government regulations, product quality, distribution channels, customer feedback, profit margins

Emma, Arjun, and Mason are running a lemonade stand. They are wondering how their product mix could affect their profitability. Can you help them understand?

• The product mix can affect profitability through its impact on sales revenue, production costs, and market demand.

• Product mix affects profitability through its impact on marketing strategies.

• Profitability is only affected by market demand.

• The product mix has no impact on profitability.