Drill 29 ·
AP Business with Personal Finance: Mixed Marketing and Finance Drill 29 is a practice drill. It contains 5 original questions created by Brian Stewart, a Barron's test prep author with over 20 years of tutoring experience.
A cross-unit drill in which a food-truck owner's pricing choice drives profit and household income; it uses an invented company and original figures.
Dana Forsythe runs Dunmere Street Kitchen, a one-person food truck, as a sole proprietor. For this simplified comparison, the truck's monthly profit is treated as the household income available for the month. Each bowl costs 4 dollars in ingredients and supplies to make (the variable cost). The owner is choosing between two prices for a bowl and has estimated how many bowls would sell each month at each price. Fixed costs (the truck permit and parking) are 2,000 dollars per month at either price.
Dunmere Street Kitchen: Two Pricing Options (one month)
| Item | Option 1: price 9 dollars | Option 2: price 12 dollars |
|---|---|---|
| Price per bowl | 9 | 12 |
| Variable cost per bowl | 4 | 4 |
| Bowls sold per month | 1,000 | 700 |
| Fixed costs per month | 2,000 | 2,000 |
Question 1. Q1. Under which pricing option does the truck sell more bowls per month, and how many?
Explanation: The answer is C (Option 1, 1,000 bowls). The table shows Option 1 selling 1,000 bowls and Option 2 selling 700, so Option 1 sells more, at 1,000. A pairs the right count with the wrong option. B pairs Option 1 with Option 2's quantity. D is wrong because the quantities differ.
Question 2. Q2. The price of a bowl minus its variable cost is the amount each bowl contributes toward covering fixed costs and profit. What is this per-bowl amount called?
Explanation: The answer is D (contribution margin). Contribution margin per unit is the selling price minus the variable cost per unit, the amount each sale contributes toward fixed costs and then profit. A is a national economic measure, not a per-unit business figure. B is just the listed price, not price minus cost. C is a cost that does not change with the number of bowls sold, not the per-bowl contribution.
Question 3. Q3. Monthly profit equals (price minus variable cost) times bowls sold, minus fixed costs. What is the monthly profit under Option 2, the 12-dollar price?
Explanation: The answer is C (3,600 dollars). Contribution per bowl is 12 minus 4, which is 8; times 700 bowls is 5,600; minus 2,000 in fixed costs leaves 3,600. D forgets to subtract fixed costs and stops at 5,600. A and B do not match the figures. For comparison, Option 1's profit is (9 minus 4) times 1,000 minus 2,000, which is 5,000 minus 2,000, or 3,000.
Question 4. Q4. Option 2 charges a higher price and sells fewer bowls, yet it produces more monthly profit than Option 1. Why?
Explanation: The answer is A. Option 2's contribution margin is 8 per bowl versus 5 for Option 1, and 8 times 700 (5,600) beats 5 times 1,000 (5,000), so the higher margin per bowl more than makes up for selling 300 fewer bowls. B is false because fixed costs are 2,000 under both options. C is false because the variable cost is 4 per bowl under both. D contradicts the table, which shows Option 2 selling fewer bowls, not more.
Question 5. Q5. The owner's goal is the highest monthly income from the truck, which this simplified example treats as the truck's monthly profit. Which pricing option should the owner choose?
Explanation: The answer is B. The criterion is the highest monthly profit, which the scenario treats as the owner's monthly income, and Option 2 yields 3,600 versus Option 1's 3,000, so Option 2 best matches the stated goal. A chooses on bowls sold, which is not the goal. C states a false rule; a lower price does not always raise profit. D is wrong because the two profits differ by 600 dollars.