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) 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 ________. 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 -----
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
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
b. What are the advantages and limitations of this technique? Diff: 1 Page Ref: 447-448
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
b. How can a retailer increase its GMROI. Diff: 2 Page Ref: 457
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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