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



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Chapter 16
1) A plan that specifies which products are purchased, when products (goods and services) are purchased, and how many products are purchased is a ________ plan.

A) unit control

B) dollar control

C) basic stock

D) financial merchandise

Answer: D

Diff: 1 Page Ref: 438

Skill: Terminology/Concept


2) Dollar control involves ________.

A) planning and monitoring a retailer's financial investment in merchandise over a stated time period

B) the quantities that a retailer handles during a stated time period

C) ordering versus holding cost determination

D) ordering goods on the basis of lead times and safety stock

Answer: A

Diff: 1 Page Ref: 438

Skill: Terminology/Concept


3) Unit control decisions relate to ________.

A) decision making relative to stockout planning

B) open-to-buy decisions

C) assortment decisions

D) total dollar investment decisions

Answer: C

Diff: 2 Page Ref: 438

Skill: Terminology/Concept


4) Merchandise available for sale equals ________.

A) sales less cost of goods sold

B) ending inventory less beginning inventory

C) cost of goods sold less ending inventory

D) beginning inventory plus purchases plus transportation charges

Answer: D

Diff: 1 Page Ref: 438

Skill: Terminology/Concept


5) The cost of goods sold equals ________.

A) sales less merchandise available for sale

B) beginning inventory plus purchases plus transportation charges

C) the cost of merchandise available for sale minus ending inventory

D) beginning inventory less ending inventory

Answer: C

Diff: 1 Page Ref: 438

Skill: Terminology/Concept

6) Gross profit equals ________.

A) sales less cost of goods sold

B) adjusted gross profit times the cost complement

C) net profit less cost of goods sold

D) net profit less tax estimates

Answer: A

Diff: 1 Page Ref: 438

Skill: Terminology/Concept


7) In the cost method of accounting, to conduct a physical inventory, a retailer must ________.

A) convert the retail selling price to cost using the cost complement

B) determine the actual cost of each item

C) increase retail value to reflect additional markups

D) utilize a LIFO system

Answer: B

Diff: 1 Page Ref: 440

Skill: Terminology/Concept


8) Merchandise cost is typically coded on packages in the ________.

A) FIFO method of inventory valuation

B) LIFO method of inventory valuation

C) cost method of retail accounting

D) retail method of accounting

Answer: C

Diff: 2 Page Ref: 440

Skill: Terminology/Concept


9) A running total of the value of all inventory on hand at cost is kept in a ________.

A) physical inventory system

B) book inventory system

C) LIFO method of inventory valuation

D) FIFO method of inventory valuation

Answer: B

Diff: 1 Page Ref: 440

Skill: Terminology/Concept


10) Which method of inventory valuation assumes that new stock is sold first while older stock remains in a retailer's inventory?

A) retail method of accounting

B) cost method of accounting

C) LIFO


D) FIFO

Answer: C

Diff: 1 Page Ref: 441

Skill: Terminology/Concept

11) Which accounting method gives retailers a tax advantage during inflationary times?

A) retail method of accounting

B) cost method of accounting

C) LIFO


D) FIFO

Answer: C

Diff: 2 Page Ref: 441

Skill: Terminology/Concept


12) A major disadvantage to the cost method of accounting is that ________.

A) markdowns, markups, and employee discounts must be constantly computed

B) costs must be assigned to each item in stock and to each item sold

C) the cost of goods sold is not based upon actual delivery costs

D) the cost complement may not accurately reflect true costs

Answer: B

Diff: 2 Page Ref: 442

Skill: Terminology/Concept


13) The average relationship of cost to retail value for a retailer's merchandise that is available for sale is the ________.

A) cost complement

B) inventory turnover

C) open-to-buy

D) stock-to-sales ratio

Answer: A

Diff: 1 Page Ref: 442

Skill: Terminology/Concept


14) In the retail method of accounting, sales, employee discounts, and stock shortages are viewed as ________.

A) adjusted markdowns

B) ending inventory value deductions

C) markdowns

D) deductions from retail value

Answer: D

Diff: 1 Page Ref: 443

Skill: Terminology/Concept

15) The ending book value of inventory less ________ or plus ________ equals adjusted ending retail book value.

A) stock shortages at cost; stock overages at cost

B) stock shortages at retail; stock overages at retail

C) purchases; sales

D) markdowns; markups

Answer: B

Diff: 2 Page Ref: 443

Skill: Terminology/Concept

16) The difference between the retail book value of ending inventory, as compared to the actual physical ending inventory value, is ________.

A) a shortage only

B) an overage only

C) either a shortage or an overage

D) the cost complement

Answer: C

Diff: 1 Page Ref: 443

Skill: Terminology/Concept


17) A major advantage to the retail method of accounting is the ________.

A) ease of preparing periodic financial statements

B) freedom from ever having to take a physical inventory

C) accuracy of the cost complement figure in approximating cost

D) ability to directly compute net profits

Answer: A

Diff: 2 Page Ref: 444

Skill: Terminology/Concept


18) A major disadvantage to the retail method of accounting is that ________.

A) book inventory value cannot be computed

B) the bookkeeping burden of keeping cost- and price-related data is considerable

C) perpetual inventory systems must be maintained

D) it does not reflect markdowns

Answer: B

Diff: 2 Page Ref: 444

Skill: Terminology/Concept


19) Merchandise categories used by a retailer in forecasting and budgeting are commonly referred to as ________.

A) strategic business units (SBUs)

B) SIC classifications

C) UPC classifications

D) control units

Answer: D

Diff: 1 Page Ref: 445

Skill: Terminology/Concept

20) In developing control units, a retailer should be careful to ________.

A) change the classifications each year to reflect the model stock plan

B) use individual stockkeeping units (SKUs) as control units

C) use the broadest categories possible to facilitate data analysis

D) use classifications consistent with other internal company data

Answer: D

Diff: 2 Page Ref: 445

Skill: Terminology/Concept

21) Which of the following is not a control unit for a men's specialty clothing chain?

A) suits

B) three-button suits

C) suits priced between $195 and $295

D) average sales by customer

Answer: D

Diff: 2 Page Ref: 445

Skill: Terminology/Concept


22) Companywide sales of large retailers are generally forecast on the basis of a statistical technique such as ________.

A) trend analysis

B) executive judgment

C) incremental forecasting

D) focus groups

Answer: A

Diff: 2 Page Ref: 446

Skill: Terminology/Concept


23) A retailer's monthly sales in October are equal to its average monthly sales for the year. Its monthly sales index for October equals ________.

A) 0.0


B) 1.0

C) 100.0

D) The answer cannot be determined on the basis of the data provided

Answer: C

Diff: 2 Page Ref: 447

Skill: Terminology/Concept


24) A sales cushion is added to planned monthly sales in determining beginning-of-month planned inventory in the ________ method of inventory-level planning.

A) stock-to-sales

B) weeks' supply

C) percentage variation

D) basic stock

Answer: D

Diff: 2 Page Ref: 448

Skill: Terminology/Concept

25) (Beginning inventory plus purchases) less (planned sales plus ending inventory) is equal to ________.

A) open-to-buy

B) planned reductions

C) the cost complement

D) markdowns

Answer: B

Diff: 2 Page Ref: 450

Skill: Terminology/Concept

26) The difference between planned purchases and purchase commitments made by a buyer for a given time period is ________.

A) open-to-buy

B) the cost complement

C) retail reductions

D) planned initial markdowns

Answer: A

Diff: 1 Page Ref: 451

Skill: Terminology/Concept


27) A major advantage of the open-to-buy concept is that it ________.

A) controls retail reductions

B) enables a retailer to adjust merchandise purchases to reflect changes in sales, markdowns, and so on

C) allows retailers to estimate stock shortages

D) minimizes ending inventory levels

Answer: B

Diff: 2 Page Ref: 451-452

Skill: Terminology/Concept


28) The use of pegboard displays with minimum inventory quantities noted on each location illustrates a ________ system.

A) perpetual

B) point-of-sale

C) stock-counting

D) visual inspection

Answer: D

Diff: 1 Page Ref: 453

Skill: Terminology/Concept


29) Ongoing recordkeeping entries adjust for sales, purchases, transfers to other departments, and returns in a ________ system.

A) visual inspection

B) point-of-sale

C) perpetual inventory

D) stock-counting

Answer: C

Diff: 1 Page Ref: 454

Skill: Terminology/Concept


30) The Universal Product Code (UPC) and scanning are important aspects of a ________ system.

A) manual system

B) POS perpetual inventory system

C) visual inspection

D) stock-counting

Answer: B

Diff: 1 Page Ref: 454

Skill: Terminology/Concept

31) An advantage to a low level of stock turnover is that ________.

A) inventory holding costs are low

B) quantity discounts can be received

C) merchandise on shelves is fresh

D) inventory investment is minimized

Answer: B

Diff: 2 Page Ref: 456

Skill: Terminology/Concept


32) The gross margin percentage and sales-to-stock ratio are two components of ________.

A) the break-even point

B) required initial markup percentage

C) the cost complement

D) gross margin return on investment (GMROI)

Answer: D

Diff: 1 Page Ref: 457

Skill: Terminology/Concept


33) The time span from the date an order is placed by a retailer to the date merchandise is ready for sale is known as the ________.

A) reorder point

B) order lead time

C) usage rate

D) safety stock

Answer: B

Diff: 1 Page Ref: 457-458

Skill: Terminology/Concept

34) Safety stock is defined as ________.

A) average sales per day

B) extra inventory kept on hand to protect against out-of-stock conditions

C) the stock level at which an order must be placed

D) the time span from placing an order until goods are ready for sale

Answer: B

Diff: 1 Page Ref: 458

Skill: Terminology/Concept


35) The economic order quantity formulas seek to trade-off which two costs?

A) order processing and holding costs

B) direct costs and indirect costs

C) out-of-pocket and cash flow costs

D) out-of-pocket and opportunity costs

Answer: A

Diff: 1 Page Ref: 459

Skill: Terminology/Concept

36) An electronics retailer has a beginning-of-year inventory (at cost) of $400,000; its ending inventory (at cost) is $410,000. Yearly purchases are $700,000 and transportation charges equal $25,000. The retailer's merchandise available for sale is ________.

A) $225,000

B) $715,000

C) $1,125,000

D) $1,225,000

Answer: C

Diff: 2 Page Ref: 438

Skill: Applied/Comprehensive/Integrative


37) An electronics retailer has a beginning-of-year inventory (at cost) of $400,000; its ending inventory (at cost) is $410,000. Yearly purchases are $700,000 and transportation charges equal $25,000. The retailer's cost of goods sold is ________.

A) $225,000

B) $615,000

C) $715,000

D) $1,100,000

Answer: C

Diff: 2 Page Ref: 438

Skill: Applied/Comprehensive/Integrative


38) An electronics retailer has yearly sales of $1,000,000; its beginning-of-year inventory (at cost) is $400,000 and its ending inventory (at cost) is $410,000. The retailer's annual purchases are $700,000 and transportation charges equal $25,000. The retailer's gross profit equals ________.

A) $225,000

B) $285,000

C) $325,000

D) $350,000

Answer: B

Diff: 2 Page Ref: 438

Skill: Applied/Comprehensive/Integrative


39) The major difference between gross and net profit is that net profit ________.

A) deducts retail operating expenses

B) does not reflect retail operating expenses

C) uses a cost complement calculation

D) estimates stock adjustments

Answer: A

Diff: 1 Page Ref: 438

Skill: Applied/Comprehensive/Integrative

40) A retailer maintains a book (perpetual) inventory system in which all figures are kept at cost values. Beginning-of-month inventory as of December 1, 2009 is $300,000; purchases in December equal $100,000; and December's sales (at cost) equal $155,000. Beginning-of-month inventory for January 1, 2010 equals ________.

A) $75,000

B) $145,000

C) $245,000

D) $300,000

Answer: C

Diff: 2 Page Ref: 440

Skill: Applied/Comprehensive/Integrative


41) During periods of rising inventory values, a retailer using the FIFO (first-in-first-out) method could reduce its tax liability by ________.

A) estimating low deductions from retail value

B) using the cost method of retail accounting

C) switching from FIFO to the LIFO method of inventory valuation

D) using a low-cost complement

Answer: C

Diff: 1 Page Ref: 441

Skill: Applied/Comprehensive/Integrative


42) If a cost complement is 0.55, that means ________.

A) a firm has a gross margin of 55 percent

B) 55 cents of each retail sales dollar is made up of merchandise cost

C) stock shortages are 45 percent of sales

D) the cost of merchandise available for sale in a time period represents 55 percent of its retail value

Answer: B

Diff: 2 Page Ref: 442

Skill: Applied/Comprehensive/Integrative


43) In preparing a retail method of accounting worksheet, your accountant has provided you with the following data:
January 1, 2009 - December 31, 2010

At Cost At Retail

Beginning inventory $ 60,000 $100,000

Net purchases 350,000 550,000

Additional markups ----- 27,000

Transportation charges 3,500 -----
What is your correct cost complement?

A) 0.60


B) 0.61

C) 0.63


D) 0.67

Answer: B

Diff: 2 Page Ref: 442

Skill: Applied/Comprehensive/Integrative

44) A retailer's ending retail book value of inventory is $165,000. A physical inventory (at retail) equals $177,000. The retailer ________.

A) switched from LIFO to FIFO

B) switched from FIFO to LIFO

C) has a stock shortage of $12,000

D) has a stock overage of $12,000

Answer: D

Diff: 1 Page Ref: 443

Skill: Applied/Comprehensive/Integrative


45) A retail sales clerk forgot to record a markdown on a dress from $149.00 to $99.00. What impact will this bookkeeping error have on the firm?

A) It will result in an additional stock overage of $50.00.

B) It will result in an additional stock overage of $99.00.

C) It will result in an additional stock shortage of $50.00.

D) It will result in an additional stock shortage of $99.00.

Answer: C

Diff: 2 Page Ref: 443

Skill: Applied/Comprehensive/Integrative


46) A retailer's ending retail book value of inventory is $30,000. A physical inventory (at retail) showed a value of $28,250. The adjusted ending retail book value of inventory is ________.

A) $28,250

B) $30,000

C) $32,750

D) $58,250

Answer: A

Diff: 2 Page Ref: 443

Skill: Applied/Comprehensive/Integrative


47) A firm's ending retail book value of inventory is $300,000; its stock shortages are $15,000. If its cost complement is 0.70, what is its ending inventory at cost?

A) $199,500

B) $210,000

C) $213,100

D) $220,500

Answer: A

Diff: 2 Page Ref: 443

Skill: Applied/Comprehensive/Integrative


48) A firm's average monthly sales are $250,000. If December's sales are $650,000, December's monthly sales index is ________.

A) 0.60


B) 2.60

C) 26


D) 260

Answer: D

Diff: 1 Page Ref: 447

Skill: Applied/Comprehensive/Integrative

49) A firm's average monthly sales are $300,000. If January's sales are $175,000, its monthly sales index is ________.

A) 0.58


B) 58

C) 1.71


D) 171

Answer: B

Diff: 1 Page Ref: 447

Skill: Applied/Comprehensive/Integrative


50) If a retailer's average monthly sales are $400,000, what would its average monthly sales index equal?

A) 0.30


B) 100

C) 300


D) The answer cannot be determined from information provided.

Answer: B

Diff: 2 Page Ref: 447

Skill: Applied/Comprehensive/Integrative


51) If a firm's sales index in January is 128 and average monthly sales are $300,000, what is the January sales level?

A) $128,000

B) $300,000

C) $384,000

D) $428,000

Answer: C

Diff: 1 Page Ref: 447

Skill: Applied/Comprehensive/Integrative


52) A retailer using the basic stock method wants its basic stock to equal 15 percent of its 2010 average monthly sales. Yearly sales for 2010 are forecast at $3,000,000. Planned sales for January 2010 are $400,000. What is the January 1, 2010 planned inventory value (at retail), using the basic stock method?

A) $415,000

B) $437,500

C) $460,000

D) The answer cannot be determined from the information provided.

Answer: B

Diff: 2 Page Ref: 448

Skill: Applied/Comprehensive/Integrative

53) A retailer uses the percentage variation method in inventory level planning. If the store plans an average monthly stock of $400,000 and September sales are estimated at 20 percent more than average, the store's planned inventory level for September is ________.

A) $420,000

B) $440,000

C) $454,000

D) $480,000

Answer: B

Diff: 2 Page Ref: 449

Skill: Applied/Comprehensive/Integrative


54) A retailer uses the weeks' supply method of inventory-level planning. Average weekly sales during a four-month period are forecast to be $10,000; the retailer wants to stock six weeks of merchandise. What should the planned average inventory level be during this period?

A) $10,000

B) $48,000

C) $60,000

D) $240,000

Answer: C

Diff: 2 Page Ref: 449

Skill: Applied/Comprehensive/Integrative


55) A retailer expects monthly sales to be $500,000 and planned reductions from sales to be $10,000. The retailer wants ending inventory to be $120,000 more than beginning inventory. Planned purchases at retail are ________.

A) $380,000

B) $410,000

C) $510,000

D) $630,000

Answer: D

Diff: 2 Page Ref: 450

Skill: Applied/Comprehensive/Integrative


56) A tire retailer plans to sell $100,000 worth of tires in January. Planned reductions are $15,000; planned inventory for January 1st is $300,000 and for January 31st is $350,000. As of January 8th, the retailer has ordered $15,000 for January delivery. What is the open-to-buy for the rest of the month?

A) $50,000

B) $65,000

C) $150,000

D) $165,000

Answer: C

Diff: 2 Page Ref: 450-451

Skill: Applied/Comprehensive/Integrative

57) A retailer has anticipated yearly expenses of $300,000, a net profit objective of $30,000, planned reductions of $50,000, and planned net sales of $1,000,000. What is its required initial markup percentage?

A) 30.0


B) 33.0

C) 36.2


D) 38.0

Answer: C

Diff: 1 Page Ref: 452

Skill: Applied/Comprehensive/Integrative


58) A retailer plans retail expenses for the following year to be 30 percent of net sales, desires a 6.0 percent (of net sales) profit margin, and assumes total reductions will be 5.0 percent of net sales. What is its required initial markup percentage?

A) 30.0


B) 36.0

C) 39.0


D) 41.0

Answer: C

Diff: 1 Page Ref: 452

Skill: Applied/Comprehensive/Integrative


59) A retailer uses a stock counting-based physical inventory system. Its beginning inventory on January 1, 2010 is 600 units; total purchases in January were 252 units. Sales for January were 325 units. A physical count of goods as of February 1, 2010 revealed 500 units. Stock shortages for the period equal ________.

A) 27 units

B) 63 units

C) 155 units

D) 235 units

Answer: A

Diff: 2 Page Ref: 454

Skill: Applied/Comprehensive/Integrative


60) A retail firm has net sales of $2,000,000 for 2010. Its average monthly inventory at hand (at retail) was $350,000. Its annual rate of stock turnover was ________.

A) 0.22


B) 0.30

C) 1.9


D) 5.7

Answer: D

Diff: 1 Page Ref: 456

Skill: Applied/Comprehensive/Integrative

61) A firm with a gross margin as a percent of sales of 20 and a sales-to-stock ratio of 10 has a GMROI of ________.

A) 20


B) 75

C) 200


D) 400

Answer: C

Diff: 1 Page Ref: 457

Skill: Applied/Comprehensive/Integrative


62) A retailer's gross profit for 2010 was $70,000; its net sales were $1,000,000 and average inventory at cost equaled $250,000. Its GMROI equaled ________.

A) 25.0 percent

B) 28.0 percent

C) 27.2 percent

D) 40.0 percent

Answer: B

Diff: 1 Page Ref: 457

Skill: Applied/Comprehensive/Integrative


63) A retailer uses a reorder point of 60 units. If its usage rate is 10 and its lead time is 5, what is its safety stock?

A) 0.0 units

B) 0.5 unit

C) 5.0 units

D) 10.0 units

Answer: D

Diff: 1 Page Ref: 458

Skill: Applied/Comprehensive/Integrative


64) A firm's usage rate is 50 units, lead time is 7 days, and safety-stock requirements are 100 units. Its reorder point is ________.

A) 100 units

B) 300 units

C) 450 units

D) 500 units

Answer: C

Diff: 1 Page Ref: 458

Skill: Applied/Comprehensive/Integrative


65) A retailer uses a 30-unit reorder point, based on assuming a 5-day lead time, a 5-day usage rate, and a 5-unit safety stock. For how many days will a stockout occur if the lead time becomes 8 days and the usage rate continues at 5 units per day?

A) 0 days

B) 1 day

C) 2 days

D) 3 days

Answer: C

Diff: 2 Page Ref: 458

Skill: Applied/Comprehensive/Integrative

66) Automatic reorder systems are best implemented for retailers that ________.

A) are independents

B) are small

C) have a perpetual inventory system and use reorder point calculations

D) are franchised

Answer: C

Diff: 1 Page Ref: 458-459

Skill: Applied/Comprehensive/Integrative


67) Automatic reorder systems can best be used for ________.

A) goods with high seasonality

B) staples

C) goods purchased using negotiation

D) goods with uncertain fashion cycles

Answer: B

Diff: 1 Page Ref: 458-459

Skill: Applied/Comprehensive/Integrative


68) A stationery store estimates that it can sell 2,000 inexpensive pens each year. Each pen costs the store $.20; holding costs equal 20 percent of unit costs and order costs are $10 per order. The economic order quantity is ________.

A) 300 pens

B) 333 pens

C) 500 pens

D) 1,000 pens

Answer: D

Diff: 1 Page Ref: 459

Skill: Applied/Comprehensive/Integrative


69) An electronics store estimates that it can sell 2,000 memory cards each year. Each card costs the store $7.00; holding costs equal 20 percent of unit costs and order costs are $10 per order. The economic order quantity is ________.

A) 12 cards

B) 122 cards

C) 140 cards

D) 169 cards

Answer: D

Diff: 1 Page Ref: 459

Skill: Applied/Comprehensive/Integrative


70) Holding costs are especially high for ________.

A) a retailer of staple goods

B) a computer retailer

C) floor-ready merchandise

D) goods with high inventory turnover

Answer: B

Diff: 2 Page Ref: 459

Skill: Applied/Comprehensive/Integrative

71) Since unit controls usually precede dollar controls, a retailer must plan its assortment decisions prior to making investment commitments.

Answer: FALSE

Diff: 1 Page Ref: 438

Skill: Terminology/Concept


72) The cost of goods sold equals the cost of merchandise available for sale less operating expenses.

Answer: FALSE

Diff: 2 Page Ref: 438

Skill: Terminology/Concept


73) Two inventory accounting systems are available to a retailer: the cost and retail methods of accounting.

Answer: TRUE

Diff: 1 Page Ref: 439

Skill: Terminology/Concept


74) Under the retail system of accounting, a retailer cannot compute its gross profit until after ending inventory is valued.

Answer: FALSE

Diff: 1 Page Ref: 442

Skill: Terminology/Concept


75) A retailer's cost complement is based upon the ratio of cost of goods sold to sales.

Answer: FALSE

Diff: 2 Page Ref: 442

Skill: Terminology/Concept


76) If a physical ending inventory amount exceeds the book inventory figure, the retailer has a stock shortage.

Answer: FALSE

Diff: 1 Page Ref: 443

Skill: Terminology/Concept


77) Stock shortages may be due to bookkeeping errors such as unrecorded markdowns.

Answer: TRUE

Diff: 2 Page Ref: 443

Skill: Terminology/Concept


78) The adjusted ending retail book value multiplied by the cost complement equals the ending inventory value at cost.

Answer: TRUE

Diff: 2 Page Ref: 443

Skill: Terminology/Concept


79) A significant advantage to the retail method of accounting is the ability to prepare a profit-and-loss statement on the basis of book inventory figures.

Answer: TRUE

Diff: 2 Page Ref: 444

Skill: Terminology/Concept

80) The average monthly sales index should equal 1.00.

Answer: FALSE

Diff: 2 Page Ref: 447

Skill: Terminology/Concept


81) Open-to-buy is the difference between planned purchases and purchase commitments already made by a buyer for that month.

Answer: TRUE

Diff: 1 Page Ref: 451

Skill: Terminology/Concept


82) A high stock turnover rate is generally associated with high inventory-holding costs.

Answer: FALSE

Diff: 1 Page Ref: 456

Skill: Terminology/Concept


83) GMROI combines gross profit and financial leverage measures.

Answer: FALSE

Diff: 2 Page Ref: 457

Skill: Terminology/Concept


84) The estimation of safety stock levels can be refined based on different probabilities of not running out of stock.

Answer: TRUE

Diff: 2 Page Ref: 458

Skill: Terminology/Concept


85) The economic order quantity formula seeks to balance inventory ordering and inventory-holding costs.

Answer: TRUE

Diff: 1 Page Ref: 459

Skill: Terminology/Concept


86) A retailer has a beginning inventory (at cost) of $96,000, purchases (at cost) of $107,000, and transportation charges of $1,000. Its merchandise available for sale is $203,000.

Answer: FALSE

Diff: 2 Page Ref: 438

Skill: Applied/Comprehensive/Integrative


87) A retailer's total merchandise available for sale (at cost) is $245,000; the total merchandise available for sale at retail equals $300,000. Its cost complement is 0.82.

Answer: TRUE

Diff: 2 Page Ref: 442

Skill: Applied/Comprehensive/Integrative


88) A Web-based retailer's adjusted retail book value is $600,000; its cost complement is 0.60. Its closing inventory at cost is $540,000.

Answer: FALSE

Diff: 2 Page Ref: 443

Skill: Applied/Comprehensive/Integrative

89) A retailer's sales for October are 70 percent of its average monthly sales level. Its monthly sales index is -0.30.

Answer: FALSE

Diff: 2 Page Ref: 447

Skill: Applied/Comprehensive/Integrative


90) A retailer's average monthly sales are $90,000. If January's monthly sales index equals 115, January's sales are $103,500.

Answer: TRUE

Diff: 2 Page Ref: 447

Skill: Applied/Comprehensive/Integrative


91) A retailer's average monthly sales are $130,000. If its monthly sales index for January is 72, January's sales are $72,000.

Answer: FALSE

Diff: 2 Page Ref: 447

Skill: Applied/Comprehensive/Integrative


92) The basic stock method plans monthly inventory requirements on the basis of a basic stock cushion and that month's estimated sales.

Answer: TRUE

Diff: 2 Page Ref: 448

Skill: Applied/Comprehensive/Integrative


93) A store plans average monthly stock of $100,000. September's sales are estimated at 30 percent more than average. The store's planned inventory for September on the basis of the percentage variation method is $115,000.

Answer: TRUE

Diff: 2 Page Ref: 449

Skill: Applied/Comprehensive/Integrative


94) A jeweler plans January 2010 sales to be $100,000 and planned reductions to be 15 percent of sales. If planned February 1, 2010 inventory equals $300,000 (at retail) and the January 1, 2010 inventory (at retail) equals $275,000, planned purchases (at retail) are $140,000.

Answer: TRUE

Diff: 2 Page Ref: 450-451

Skill: Applied/Comprehensive/Integrative


95) A firm's planned purchases for a given month are $70,000 and its purchase commitments are $10,000. If its merchandise costs as a percent of selling price are .70, its open-to-buy at cost is $4,200.

Answer: FALSE

Diff: 2 Page Ref: 451-452

Skill: Applied/Comprehensive/Integrative

96) A book department has $500,000 in yearly operating expenses and planned yearly sales of $5,000,000. If reductions of $75,000 are anticipated and a profit goal of $200,000 is planned, its required initial markup should be 15.3 percent.

Answer: TRUE

Diff: 2 Page Ref: 452

Skill: Applied/Comprehensive/Integrative


97) A dinnerware retailer plans retail operating expenses to be 42 percent of sales, a net profit margin of 6 percent of sales and retail reductions to be 4 percent of sales. Its required initial markup needs to equal 50 percent.

Answer: TRUE

Diff: 2 Page Ref: 452

Skill: Applied/Comprehensive/Integrative


98) A retailer's cost of goods sold during the year equals $500,000; its average inventory on hand (at cost) equals $225,000 and planned reductions equal $25,000. Its annual rate of stock turnover equals 2.

Answer: FALSE

Diff: 2 Page Ref: 456

Skill: Applied/Comprehensive/Integrative


99) A retailer has a usage rate of 11 units per day, a lead time of 6 days, and a safety stock level of 9 units for a popular floor lamp. Its reorder point equals 77 units.

Answer: FALSE

Diff: 2 Page Ref: 458

Skill: Applied/Comprehensive/Integrative


100) An appliance repair service center estimates that the annual demand for a standard replacement motor for a washing machine is 100 units. Order placement costs are $8; each motor costs $50 and annual carrying costs per unit are 20 percent of purchase cost. The economic order quantity is 13 units.

Answer: TRUE

Diff: 2 Page Ref: 459

Skill: Applied/Comprehensive/Integrative


101) Differentiate between dollar and unit control.

Diff: 1 Page Ref: 438


102) a. Discuss the differences between the FIFO (first-in-first-out) and LIFO (last-in-first-out) methods of costing inventory.

b. Explain how retailers can reduce their profits by switching to LIFO.

Diff: 1 Page Ref: 441
103) Explain the advantages and disadvantages of cost-based inventory systems.

Diff: 1 Page Ref: 440-442

104) The three basic steps in computing an ending inventory value, using the retail method, are: (1) calculating the cost complement, (2) calculating deductions from retail value, and (3) converting retail inventory value to cost. Explain the components of each calculation. Use data.

Diff: 2 Page Ref: 442-443


105) Discuss the advantages and limitations of the retail method of accounting in comparison to the cost method.

Diff: 1 Page Ref: 444


106) a. Develop a checklist for evaluating a firm's control units.

b. Develop a control unit for a computer retailer.

Diff: 2 Page Ref: 445-446
107) a. Describe how a retailer can implement a sales forecast using the monthly sales index.

b. What are the advantages and limitations of this technique?

Diff: 1 Page Ref: 447-448
108) Differentiate among the following inventory-level planning techniques: basic stock method, percentage variation method, weeks' supply method, and stock-to-sales method.

Diff: 2 Page Ref: 448-449


109) Describe how a retailer should engage in reduction planning. Discuss each reduction source in your analysis.

Diff: 2 Page Ref: 450


110) a. Describe the difference between planned purchases (at retail) and open-to-buy (at retail).

b. Why is open-to-buy planning so important a measure for a retailer?

Diff: 2 Page Ref: 450-452
111) a. Describe the calculation of gross margin return on investment (GMROI).

b. How can a retailer increase its GMROI.

Diff: 2 Page Ref: 457
112) a. Explain how a stockout can occur using the reorder point formula.

b. Describe the use of the economic order quantity formula (EOQ) in planning reorder quantities.

Diff: 1 Page Ref: 458-45



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