Flexible element of a retailer's strategy mix is. A merchandise assortment



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Chapter 12

1) A retailer's revenues and expenses for a given period of time are summarized in a ________.

A) profit-and-loss (income) statement

B) balance sheet

C) strategic profit model

D) product/market opportunity matrix

Answer: A

Diff: 1 Page Ref: 336

Skill: Terminology/Concept
2) A retailer's assets, liabilities, and net worth are summarized at a specific period of time in a ________.

A) profit-and-loss (income) statement

B) balance sheet

C) strategic profit model

D) product/market opportunity matrix

Answer: B

Diff: 1 Page Ref: 337

Skill: Terminology/Concept


3) A retail asset is ________.

A) the net worth of a retailer as reflected on a balance sheet

B) an item that is either cash or can be easily converted to cash

C) an item that a retailer owns that has a monetary value

D) the value of items the retailer owns less retail liabilities on these items

Answer: C

Diff: 1 Page Ref: 337

Skill: Terminology/Concept


4) Which are examples of current assets to a retailer?

A) cash, inventory on hand, and accounts receivable

B) buildings, fixtures, and land

C) accounts receivable, sales tax receipts before required payments, and fixtures

D) inventory on order, fixtures, and replacement parts in inventory

Answer: A

Diff: 1 Page Ref: 337

Skill: Terminology/Concept


5) Which are examples of fixed assets to a retailer?

A) cash, inventory on hand, and accounts receivable

B) buildings, store fixtures, and real-estate

C) accounts receivable, sales tax receipts before required payments, and fixtures

D) inventory on order, fixtures, and accounts receivable

Answer: B

Diff: 1 Page Ref: 337

Skill: Terminology/Concept

6) An example of a hidden asset to a retailer is ________.

A) a long-term relationship with a supplier

B) goodwill paid by the retailer in a recent acquisition

C) valuable depreciated real-estate

D) a valuable warehouse recently purchased at its appraised value

Answer: C

Diff: 2 Page Ref: 337

Skill: Terminology/Concept


7) A retailer's assets equal its ________.

A) liabilities plus net worth

B) net worth less liabilities

C) current assets less current liabilities

D) net worth

Answer: A

Diff: 2 Page Ref: 338

Skill: Terminology/Concept


8) A retailer's net worth equals its ________.

A) current assets minus current liabilities

B) assets minus liabilities

C) current plus fixed assets

D) fixed assets minus fixed liabilities

Answer: B

Diff: 1 Page Ref: 338

Skill: Terminology/Concept


9) A retailer's net worth is also referred to as its ________.

A) current assets plus fixed assets

B) net assets

C) present value of assets

D) owner's equity

Answer: D

Diff: 1 Page Ref: 338

Skill: Terminology/Concept


10) The relationship between a retailer's net profits and net sales is its ________.

A) asset turnover

B) net profit margin

C) operating costs

D) cost of goods sold

Answer: B

Diff: 1 Page Ref: 338

Skill: Terminology/Concept

11) Net sales divided by total assets equals ________.

A) financial leverage

B) investment intensity

C) inventory turnover

D) asset turnover

Answer: D

Diff: 1 Page Ref: 338

Skill: Terminology/Concept


12) A firm can increase its asset turnover performance by ________.

A) lowering rental costs through use of low-cost warehouse-type locations

B) reducing labor expense through centralized operations

C) increasing liabilities to lower the asset base

D) stocking inventory that is fast-moving

Answer: D

Diff: 2 Page Ref: 338

Skill: Terminology/Concept


13) The return on assets (ROA) measure for a retailer is comprised of ________.

A) gross profit and operating expenses

B) asset turnover and net profit margin

C) gross margin return on inventory (GMROI) and inventory turnover

D) net profit and investment intensity

Answer: B

Diff: 2 Page Ref: 339

Skill: Terminology/Concept


14) Financial leverage equals ________.

A) total assets divided by net worth

B) total assets divided by total liabilities

C) total current assets divided by total current liabilities

D) (net worth - total assets) divided by net sales

Answer: A

Diff: 1 Page Ref: 339

Skill: Terminology/Concept


15) A retailer can increase his or her financial leverage through ________.

A) selling common stock

B) leasing rather than purchasing assets

C) reducing operating expenses

D) increasing short- and long-term debt

Answer: D

Diff: 2 Page Ref: 339

Skill: Terminology/Concept

16) The relationship among asset turnover, net profit margin, and financial leverage is known as ________.

A) asset turnover

B) return on assets

C) the strategic profit model

D) zero-based budgeting

Answer: C

Diff: 1 Page Ref: 340

Skill: Terminology/Concept


17) The return on net worth (RONW) ratio is based on a retailer's ________.

A) net profit margin and financial leverage

B) net profit margin and asset turnover

C) net profit margin, asset turnover, and financial leverage

D) gross profit margin and operating costs as a percent of sales

Answer: C

Diff: 2 Page Ref: 340

Skill: Terminology/Concept


18) Return on investment is measured by which ratio?

A) return on net sales

B) return on net worth

C) assets to net sales

D) accounts payable to net sales

Answer: B

Diff: 1 Page Ref: 340

Skill: Terminology/Concept


19) The quick ratio equals ________.

A) (cash + accounts receivable) divided by total current liabilities

B) total assets divided by annual net sales

C) total assets divided by total liabilities

D) current assets total current liabilities

Answer: A

Diff: 1 Page Ref: 340

Skill: Terminology/Concept


20) A retailer can best measure its liquidity by evaluating its ________.

A) collection period

B) return on net sales ratio

C) accounts payable to net sales ratio

D) quick ratio

Answer: D

Diff: 2 Page Ref: 340

Skill: Terminology/Concept

21) The current ratio equals ________.

A) (cash + accounts receivable) divided by total current liabilities

B) total assets divided by annual net sales

C) total assets divided by total liabilities

D) total current assets divided by total current liabilities

Answer: D

Diff: 1 Page Ref: 340

Skill: Terminology/Concept


22) A collection period equals ________.

A) accounts receivable divided by net sales

B) [(cash + accounts receivable) divided by net sales] × 365

C) (accounts receivable divided by net sales) × 365

D) (current assets divided by net sales) × 365

Answer: C

Diff: 1 Page Ref: 340

Skill: Terminology/Concept


23) A retailer seeking to decrease its collection period should ________.

A) decrease the frequency of mailing credit statements

B) reduce its debt through the sale of common stock

C) encourage slow-paying customers to use bank credit cards

D) sell assets to convert them to cash

Answer: C

Diff: 2 Page Ref: 340

Skill: Terminology/Concept


24) Leveraged buyouts are characterized by ________.

A) initial public offerings (IPOs)

B) high degrees of debt

C) financing from real-estate investment trusts (REITs)

D) mergers and consolidations

Answer: B

Diff: 1 Page Ref: 343

Skill: Terminology/Concept


25) As part of Chapter 11 bankruptcy protection, a retailer can ________.

A) raise additional capital for mergers

B) refuse to pay bills

C) get out of leases

D) convert stock ownership to bonds

Answer: C

Diff: 1 Page Ref: 343

Skill: Terminology/Concept

26) A retailer's planned expenditures for a given time period, based on its expected performance, is its ________.

A) budget

B) financing needs

C) sales forecast

D) forecast

Answer: A

Diff: 1 Page Ref: 345

Skill: Terminology/Concept


27) A participative relationship is the keystone of ________ budgeting.

A) hierarchical

B) centralized

C) bottom-up

D) top-down

Answer: C

Diff: 2 Page Ref: 346

Skill: Terminology/Concept


28) An example of an operating expenditure is ________.

A) depreciation

B) salesperson salaries

C) fixture costs

D) computer costs

Answer: B

Diff: 2 Page Ref: 347

Skill: Terminology/Concept


29) An example of a fixed cost to a electronics retailer is ________.

A) advertising expense

B) personnel bonuses

C) sales commissions

D) electric utility expense

Answer: D

Diff: 2 Page Ref: 347

Skill: Terminology/Concept


30) Natural account expenses are ________.

A) related to a retailer's performance during the budget period

B) classified on the basis of purpose or activity

C) reported by the names of their cost

D) shared by two or more departments

Answer: C

Diff: 1 Page Ref: 347

Skill: Terminology/Concept

31) The budgeting process begins anew each time in ________ budgeting.

A) incremental

B) zero-based

C) bottom-up

D) top-down

Answer: B

Diff: 2 Page Ref: 348

Skill: Terminology/Concept


32) In incremental budgeting, ________.

A) budgeted amounts are inflexible throughout the budget time period

B) the budget is changed to reflect input from lower-level executives, as well as middle and top management

C) a retailer starts each expense classification at zero and adds an appropriate amount

D) past budgets are used as a guide in the current budgeting process

Answer: D

Diff: 2 Page Ref: 348

Skill: Terminology/Concept


33) December accounts for 25 percent of a clothing store's annual sales. Thirty percent of December's sales are on the retailer's own credit card. These sales will be paid for by consumers sometimes in January of the following year. These credit sales have a significant impact on the retailer's ________ budget.

A) cash flow

B) zero-based

C) incremental

D) top-down

Answer: A

Diff: 2 Page Ref: 347

Skill: Terminology/Concept


34) The undertaking of a new retail venture precluded a retailer from other ventures due to the scarcity of resources (capital, management talent, and labor). This refers to ________.

A) zero-based budgeting

B) top-down budgeting

C) opportunity costs

D) bottom-up budgeting

Answer: C

Diff: 2 Page Ref: 350-351

Skill: Terminology/Concept


35) Which strategy involves productivity?

A) A retailer trains its sales personnel in order to increase the sale of related items.

B) A retailer sells common stock at $15 per share.

C) A retailer sells a $10 million long-term bond to finance new store construction.

D) A retailer uses an advertising agency to develop an image-related promotional theme.

Answer: A

Diff: 2 Page Ref: 351

Skill: Terminology/Concept

36) A firm's current assets equal $150,000; its fixed assets are $850,000; its current liabilities are $225,000 and its fixed liabilities are $400,000. What is its net worth?

A) $75,000

B) $375,000

C) $450,000

D) $600,000

Answer: B

Diff: 1 Page Ref: 338

Skill: Applied/Comprehensive/Integrative


37) A retailer can increase its profit margin by ________.

A) increasing its financial leverage

B) increasing debt

C) increasing its marketing expenditures

D) lowering its cost of goods sold

Answer: D

Diff: 2 Page Ref: 338

Skill: Applied/Comprehensive/Integrative


38) A retailer will have low asset turnover when it has ________.

A) a high proportion of slow-selling inventory

B) high financial leverage

C) a high profit margin

D) high debt relative to assets

Answer: A

Diff: 2 Page Ref: 338

Skill: Applied/Comprehensive/Integrative


39) A retailer can improve its asset turnover by ________.

A) reducing interest expenditures

B) utilizing quick response (QR) inventory planning

C) increasing financial leverage

D) lowering operating expenses

Answer: B

Diff: 2 Page Ref: 338

Skill: Applied/Comprehensive/Integrative


40) A disadvantage to a firm's having too high an asset turnover ratio is the ________.

A) high inventory holding costs

B) high quantity of stale merchandise on hand

C) loss of quantity discounts with suppliers

D) loss of bargaining power with suppliers

Answer: C

Diff: 2 Page Ref: 338

Skill: Applied/Comprehensive/Integrative

41) A retailer has $10 of assets for each $9 of liabilities. What is its financial leverage?

A) 0.9 times

B) 9.0 times

C) 10.0 times

D) The answer cannot be determined based on the information given.

Answer: C

Diff: 2 Page Ref: 339

Skill: Applied/Comprehensive/Integrative


42) A retailer's liabilities are very low relative to its assets. The retailer has ________.

A) low financial leverage

B) low fixed assets

C) high asset turnover

D) low net worth

Answer: A

Diff: 1 Page Ref: 339

Skill: Applied/Comprehensive/Integrative


43) A retailer has a return on net worth of 24 percent. If its asset turnover is 3 and its profit margin is 4.0 percent, what is its financial leverage?

A) 2 times

B) 2 percent

C) 4 times

D) 4 percent

Answer: A

Diff: 1 Page Ref: 340

Skill: Applied/Comprehensive/Integrative


44) A difficulty with increasing a retailer's return on net worth through high financial leverage is the ________.

A) possible loss in sales due to being out-of-stock on desirable merchandise

B) negative effect on net profit due to high inventory levels

C) uncertainty of repayment of interest and debt

D) high costs of stocking inventory

Answer: C

Diff: 2 Page Ref: 340

Skill: Applied/Comprehensive/Integrative


45) The quick ratio measures a retailer's ability to ________.

A) raise capital with a stock offering

B) earn a satisfactory profit

C) cover short-term debt

D) control operating expenses

Answer: C

Diff: 1 Page Ref: 340

Skill: Applied/Comprehensive/Integrative

46) A retailer with a high interest cost due to high financial leverage needs to carefully evaluate its ________.

A) quick ratio

B) return on net worth

C) collection period

D) assets to net sales ratio

Answer: A

Diff: 2 Page Ref: 340

Skill: Applied/Comprehensive/Integrative


47) A firm has $400,000 in cash, $250,000 in accounts receivable, and $700,000 in current liabilities. Its quick ratio is ________.

A) 0.36


B) 0.57

C) 0.93


D) 1.14

Answer: C

Diff: 1 Page Ref: 340

Skill: Applied/Comprehensive/Integrative


48) The basic difference between the quick ratio and the current ratio is that the ________.

A) quick ratio assumes that marketable securities can be quickly converted to cash

B) quick ratio is a more severe test

C) quick ratio assumes that inventories can be quickly converted to cash

D) current ratio measures only the most liquid assets

Answer: B

Diff: 2 Page Ref: 340

Skill: Applied/Comprehensive/Integrative

49) A retailer has $300,000 in cash, $500,000 in accounts receivable, $1,000,000 in inventories, $400,000 in marketable securities, and $2,000,000 in total current liabilities. What is its current ratio?

A) 0.15


B) 0.40

C) 1.100

D) 1.375

Answer: C

Diff: 1 Page Ref: 340

Skill: Applied/Comprehensive/Integrative


50) A retailer's net sales equals $300,000; its accounts receivable is $30,000. Its collection period is approximately ________.

A) 10 days

B) 30 days

C) 36 days

D) 54 days

Answer: C

Diff: 1 Page Ref: 340

Skill: Applied/Comprehensive/Integrative

51) The collection period measures ________.

A) average grants to charitable institutions

B) the average time in court needed to get customers to pay late bills

C) how current a retailer is in paying its accounts payable

D) the average age of accounts receivable

Answer: D

Diff: 1 Page Ref: 340

Skill: Applied/Comprehensive/Integrative


52) A firm's collection period is 37 days; its overall terms are 30 days. This indicates ________.

A) slow-turning accounts receivable

B) fast-turning accounts receivable

C) average-turning accounts receivable

D) slow paying of accounts payable

Answer: C

Diff: 1 Page Ref: 340

Skill: Applied/Comprehensive/Integrative


53) A retailer typically has half of its sales on credit. Credit sales are payable in full within 30 days of the merchandise's sales. The retailer's collection period (based on total net sales) is 15 days. The retailer has ________.

A) slow-turning accounts receivable

B) average-turning accounts receivable

C) fast-turning accounts receivable

D) high financial leverage

Answer: B

Diff: 2 Page Ref: 340

Skill: Applied/Comprehensive/Integrative


54) A retailer has a collection period of 37 days. Its net sales equal $1,000,000. Its accounts receivable equals ________.

A) $27,027

B) $36,000

C) $101,370

D) The answer cannot be determined from the information provided

Answer: C

Diff: 2 Page Ref: 340

Skill: Applied/Comprehensive/Integrative


55) A retailer can increase its accounts payable to net sales ratio by ________.

A) buying in large quantities

B) increasing its inventory turnover

C) paying accounts payable early to receive cash discounts

D) demanding longer payment terms from vendors

Answer: D

Diff: 2 Page Ref: 341

Skill: Applied/Comprehensive/Integrative

56) In a leveraged buyout, a firm's financial leverage ratio ________.

A) equals zero

B) equals 1

C) equals infinity

D) is a high number

Answer: D

Diff: 1 Page Ref: 343

Skill: Applied/Comprehensive/Integrative


57) A disadvantage associated with the use of leveraged buyouts is ________.

A) a high collection period

B) low asset turnover

C) the high debt-to-assets ratio

D) low return on net assets

Answer: C

Diff: 2 Page Ref: 343

Skill: Applied/Comprehensive/Integrative

58) The major difference between the top-down and the bottom-up budgeting process is ________.

A) whether the budget request is raised or lowered

B) the degree of centralization in the budgetary process

C) whether zero or incremental budgeting is used

D) the time interval between initial budget setting and the end of the budgetary process

Answer: B

Diff: 2 Page Ref: 346

Skill: Applied/Comprehensive/Integrative


59) Which budgeting process is most compatible with a management style that assumes that employees can be self-managers?

A) zero-based

B) incremental

C) bottom-up

D) top-down

Answer: C

Diff: 2 Page Ref: 346

Skill: Applied/Comprehensive/Integrative


60) A multi-unit retailer seeks to determine the profitability of a number of stores located in the Northeast. In calculating expenses by geographic area, the firm does not have to allocate which expenses?

A) direct costs

B) opportunity costs

C) natural account expenses

D) variable costs

Answer: A

Diff: 1 Page Ref: 347

Skill: Applied/Comprehensive/Integrative

61) The discount division of a diversified retailer has revenues of $10,000,000, direct costs of $8,000,000, and indirect costs of $3,000,000. What is the division's total profit?

A) -$1,000,000

B) $2,000,000

C) $5,000,000

D) Total profit cannot be determined based on the information provided

Answer: A

Diff: 2 Page Ref: 347

Skill: Applied/Comprehensive/Integrative


62) The discount division of a diversified retailer has revenues of $10,000,000, direct costs of $8,000,000, and indirect costs of $3,000,000. What is the short-run impact of eliminating this division?

A) The short-run profit will increase by $1,000,000.

B) The short-run profit will decrease by $2,000,000.

C) The short-run profit will decrease by $3,000,000.

D) The short-run impact cannot be determined based on the information provided.

Answer: B

Diff: 2 Page Ref: 347

Skill: Applied/Comprehensive/Integrative


63) The expense categories that appear on a profit-and-loss statement are ________ expenses.

A) direct

B) indirect

C) functional account

D) natural account

Answer: D

Diff: 1 Page Ref: 347

Skill: Applied/Comprehensive/Integrative


64) All expenditure levels are questioned in ________ budgeting.

A) bottom-up

B) top-down

C) incremental

D) zero-based

Answer: D

Diff: 1 Page Ref: 348

Skill: Applied/Comprehensive/Integrative


65) The major difference between zero-based and incremental budgeting is the ________.

A) use of a reference point in the budget process

B) degree of employee participation

C) use of top-down versus bottom-up processes

D) extent to which inflation is taken into account

Answer: A

Diff: 2 Page Ref: 348

Skill: Applied/Comprehensive/Integrative

66) Which natural expense category is charged as an expense in the period incurred, but does not have a negative effect on cash flow?

A) depreciation

B) travel

C) media costs

D) equipment rentals

Answer: A

Diff: 2 Page Ref: 349, 347

Skill: Applied/Comprehensive/Integrative

67) Annual cash flow planning is especially difficult when a retailer ________.

A) uses quick response (QR) inventory planning

B) has high depreciation expense

C) buys merchandise on a consignment basis

D) has a highly seasonal business

Answer: D

Diff: 1 Page Ref: 349

Skill: Applied/Comprehensive/Integrative


68) Which expense is normally not in a retailer's cash flow budget?

A) interest expense

B) employee fringe benefits

C) drawing account

D) opportunity costs

Answer: D

Diff: 2 Page Ref: 349, 350

Skill: Applied/Comprehensive/Integrative


69) A retailer opened 10 new home appliance stores. The same resources could have been used to expand its 15 existing stores into category killer stores. While the retailer earned $600,000 last year, it figures it could have earned $1,000,000 if it went with the larger store alternative. Its opportunity costs last year were ________.

A) $400,000

B) $600,000

C) $1,600,000

D) The answer cannot be determined based on the information provided

Answer: A

Diff: 2 Page Ref: 350

Skill: Applied/Comprehensive/Integrative


70) A retailer assigns a return on investment of 10 percent on the value of its company-owned warehouse. This illustrates which concept?

A) asset turnover

B) incremental budgeting

C) opportunity costs

D) prototype store

Answer: C

Diff: 2 Page Ref: 350

Skill: Applied/Comprehensive/Integrative

71) A low overall gross margin may mean that a firm's operating expenses are too high.

Answer: FALSE

Diff: 2 Page Ref: 336

Skill: Terminology/Concept


72) A retailer's net worth is computed as its assets less its fixed liabilities.

Answer: FALSE

Diff: 1 Page Ref: 338

Skill: Terminology/Concept


73) A low assets to net sales ratio represents the use of debt to finance acquisitions, growth, or stock repurchase.

Answer: FALSE

Diff: 2 Page Ref: 339

Skill: Terminology/Concept


74) A retailer that can double its asset turnover, while keeping its profit margin constant, doubles its return on assets.

Answer: TRUE

Diff: 2 Page Ref: 338

Skill: Terminology/Concept


75) A retailer's return on net worth is based upon its asset turnover, net profit margin, and financial leverage.

Answer: TRUE

Diff: 1 Page Ref: 339

Skill: Terminology/Concept


76) While too little a financial leverage figure represents overly conservative management, too high a figure represents high risk.

Answer: TRUE

Diff: 2 Page Ref: 339

Skill: Terminology/Concept


77) A firm's quick and current ratios are both measures of long-term debt levels.

Answer: FALSE

Diff: 1 Page Ref: 340

Skill: Terminology/Concept


78) A firm's collection period needs to be evaluated on the basis of its percent of credit sales.

Answer: FALSE

Diff: 2 Page Ref: 340

Skill: Terminology/Concept


79) Leveraged buyouts (LBOs) are characterized by high debt.

Answer: TRUE

Diff: 1 Page Ref: 343

Skill: Terminology/Concept

80) Top-down budgeting represents a decentralized budgetary process.

Answer: FALSE

Diff: 2 Page Ref: 346

Skill: Terminology/Concept


81) Indirect costs are traceable to a profit center while direct costs must be allocated on the basis of judgment.

Answer: FALSE

Diff: 2 Page Ref: 347

Skill: Terminology/Concept


82) In incremental budgeting, a firm starts each budget period with a zero figure.

Answer: FALSE

Diff: 1 Page Ref: 348

Skill: Terminology/Concept


83) A retailer's cash flow for a period is equal to its sales revenue for the same period.

Answer: FALSE

Diff: 2 Page Ref: 349

Skill: Terminology/Concept


84) Opportunity costs represent foregone income.

Answer: TRUE

Diff: 1 Page Ref: 350

Skill: Terminology/Concept


85) The concept of opportunity costs is based on recognizing that a firm's financial resources are finite.

Answer: TRUE

Diff: 1 Page Ref: 350

Skill: Terminology/Concept


86) A retailer's asset turnover is four times; its profit margin equals four percent. Its return on assets is four percent.

Answer: FALSE

Diff: 1 Page Ref: 336

Skill: Applied/Comprehensive/Integrative


87) While a retailer's overall gross margin is high, its net profit margin is low. This indicates that the retailer should reevaluate its use of markdowns.

Answer: FALSE

Diff: 2 Page Ref: 336, 338

Skill: Applied/Comprehensive/Integrative


88) A firm that has been involved in a leveraged buyout (LBO) has low financial leverage.

Answer: FALSE

Diff: 2 Page Ref: 339, 343

Skill: Applied/Comprehensive/Integrative

89) The strategic profit model equals return on net worth.

Answer: TRUE

Diff: 1 Page Ref: 340

Skill: Applied/Comprehensive/Integrative


90) A firm's current ratio is always higher than its quick ratio (for the same accounting period).

Answer: TRUE

Diff: 2 Page Ref: 340

Skill: Applied/Comprehensive/Integrative


91) A slow collection period may indicate bad debts.

Answer: TRUE

Diff: 2 Page Ref: 340

Skill: Applied/Comprehensive/Integrative


92) A firm has accounts receivable of $400,000 and net sales of $2,000,000. Its collection period is five days.

Answer: FALSE

Diff: 2 Page Ref: 340

Skill: Applied/Comprehensive/Integrative


93) A retailer can decrease its collection period by stressing that its customers use retailer-generated credit cards.

Answer: FALSE

Diff: 2 Page Ref: 340

Skill: Applied/Comprehensive/Integrative


94) A low accounts payable to net sales ratio may indicate that a firm's suppliers grant liberal credit terms.

Answer: FALSE

Diff: 2 Page Ref: 341

Skill: Applied/Comprehensive/Integrative


95) A leveraged buyout (LBO) retailer has high assets relative to net worth.

Answer: TRUE

Diff: 1 Page Ref: 343

Skill: Applied/Comprehensive/Integrative


96) Top-down budgeting reflects a style of supervising retail employees that assumes that employees lack ambition and dislike responsibility.

Answer: TRUE

Diff: 2 Page Ref: 346

Skill: Applied/Comprehensive/Integrative


97) The major difference between top-down and bottom-up budgeting is based upon the direction of the flow of information.

Answer: TRUE

Diff: 2 Page Ref: 346

Skill: Applied/Comprehensive/Integrative

98) Total retailing expenses can be best analyzed when they are tabulated on the basis of natural account expenses.

Answer: FALSE

Diff: 2 Page Ref: 347

Skill: Applied/Comprehensive/Integrative


99) Zero-based budgeting requires greater justification than incremental-based budgeting.

Answer: TRUE

Diff: 2 Page Ref: 348

Skill: Applied/Comprehensive/Integrative


100) Opportunity costs are reflected in a profit-and-loss statement.

Answer: FALSE

Diff: 2 Page Ref: 350-351

Skill: Applied/Comprehensive/Integrative


101) Describe the relationship among each of the components of the strategic profit model.

Diff: 1 Page Ref: 340


102) Explain how each of the components of the strategic profit model can be improved. Be specific.

Diff: 2 Page Ref: 340, 338-339


103) A retailer compared his/her key business ratios with data available from secondary sources. The retailer noted poorer than average performance on the following ratios: quick ratio, accounts payable to net sales, and return on net worth. Develop specific recommendations to improve the performance on these ratios.

Diff: 2 Page Ref: 340-341


104) a. Differentiate between the current ratio and the quick ratio.

b. Why is a 1 to 1 ratio acceptable for a quick ratio, yet a 2 to 1 ratio is considered satisfactory for the current ratio?

Diff: 2 Page Ref: 340
105) a. Describe five specific strategies that a retailer can use to improve its collection period.

b. List the pros and cons of each strategy.

Diff: 1 Page Ref: 340
106) a. Why have so many leveraged buyouts (LBOs) involved retailers?

b. What has been the impact of LBOs on retailing?

Diff: 2 Page Ref: 343
107) Discuss three important financial trends that relate to retailing.

Diff: 1 Page Ref: 342-345


108) a. Describe the relative advantages and disadvantages of top-down and bottom-up budgeting.

b. Describe the relationship of top-down and bottom-up budgeting to contrasting styles of supervising employees.

Diff: 1 Page Ref: 346, 332

109) a. Explain the difficulties of determining the profitability of a retail division with a high proportion of indirect expenses.

b. Explain the relationship of natural account expenses and functional account expenses.

Diff: 2 Page Ref: 347


110) a. Differentiate between zero-based and incremental budgeting.

b. Under what conditions would you use each technique?

Diff: 1 Page Ref: 348
111) A major department store needs to improve its cash flow to insure the prompt payment of its debt. Develop a strategy to improve cash flow through key cash usage and inflow areas.

Diff: 2 Page Ref: 349


112) a. Discuss five methods of improving retail productivity (nonpersonnel related).

b. What are the risks inherent in each method?

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