Deck 8: Managing a Retailer’s Finances

Question 1

Which of the following figures is NOT found on a six-month merchandise budget?

A) Planned sales percentage
B) Planned retail purchases
C) Inventory depreciation
D) Planned gross margin dollars
E) Planned EOM stock

Answer 1

C

Question 2

The most important financial statement a retailer prepares is the:

A) merchandise budget.
B) sales report.
C) balance sheet.
D) statement of cash flow.
E) income statement.

Answer 2

E

Question 3

If a retailer's planned BOM inventory for April is $136,000,we can assume that the retailer's:

A) EOM inventory for March was $136,000.
B) planned sales for the month will exceed that amount.
C) BOM inventory requirements for May will be the same.
D) BOM inventory for March was also $136,000.
E) planned sales for the next month will exceed that amount.

Answer 3

A

Question 4

Suppose last year's sales were $100,000; inflation is 3 percent and you expect your market share to increase by 6 percent.What are your projected sales for this year?

A) $103,000
B) $106,000
C) $109,000
D) $109,180
E) $118,000

Question 5

If the planned sales for the month are $70,000,the merchandise budget calls for a planned stock-to-sales ratio of 2.3,and the financial leverage is 1.1,then the planned BOM inventory should be:

A) $77,000
B) $84,000
C) $161,000
D) $177,100
E) $194,100

Question 6

Once planned sales have been determined,the next step when developing a merchandise budget is to determine:

A) planned monthly BOM/EOM inventories.
B) the buyer's planned monthly gross margin.
C) planned monthly retail reductions.
D) total planned sales for the season.
E) planned purchases at retail and cost.

Question 7

Total planned sales for the spring-summer season for the Mort's Discount Store are $25,000,000.The planned monthly sales for March is 25 percent of total planned sales.March's planned sales are:

A) $2,500,000.
B) $6,250,000.
C) $12,500,000.
D) $15,625,000.
E) $18,750,000.

Question 8

When doing next season's merchandise budget,the buyer's planned purchases at retail are $125,000 with a markup percentage of 40% at retail.What is the buyer's planned initial markup?

A) $50,000
B) $75,000
C) $60,000
D) $96,000
E) $84,000

Question 9

An income statement:

A) shows the estimated cash inflows and outflows for the period.
B) gives the retailer a summary of the firm's financial position at a given point in time.
C) is usually only prepared when the retailer is seeking to obtain a loan.
D) provides a summary of the sales and expenses for a given time period.
E) is the only financial statement that shows the retailer's retained earnings.

Question 10

A buyer's planned sales are $80,000,planned initial markup is $60,000 and planned reductions are $7,500.What is the buyer's planned gross margin on the merchandise budget?

A) $52,500
B) $72,500
C) $60,000
D) $67,500
E) $87,500

Question 11

A(n)_____ depicts the amount of stock to have at the beginning of each month to support the forecasted sales for that month.

A) current asset
B) BOM inventory
C) stock-to-sales ratio
D) sales-to-stock ratio
E) EOM inventory

Question 12

_____ is (are)the difference between net sales and cost of goods sold.

A) Gross margin
B) Gross sales
C) Operating profit
D) Net profit
E) Operating margin

Question 13

_____ is the planning and control of the buying and selling of goods and services,to help the retailer realize its objectives.

A) Retailing
B) Retail reduction analysis
C) Merchandising
D) Forecasting
E) Store management

Question 14

A merchandise budget is a plan of:

A) projected sales for an upcoming season, when and how much merchandise is to be purchased, and what segments of the market to target.
B) projected sales for an upcoming season when and how much merchandise is to be purchased, and what markups and reductions will likely occur.
C) projected sales for an upcoming season, when and how much merchandise is to be purchased (excluding potential markups and reductions).
D) projected sales for an upcoming year, when and how much merchandise is to be purchased, and what reductions will likely occur.
E) projected reductions for the upcoming season.

Question 15

Your boss indicates that the store's stock/sales ratio is 5:1.This means that _____ should be invested in inventory for every $1 of forecasted sales.

A) $.20 (at retail price)
B) $5 (at cost price)
C) $5 (at retail price)
D) $.20 (at cost price)
E) $50 (at cost price)

Question 16

All of the following are requirements for a merchandise budget EXCEPT:

A) the budget should be prepared in advance of the selling season.
B) the language in the budget must be easy to understand.
C) the budget must plan for a relatively short period of time.
D) the budget should always seek to increase the planned gross margin over the actual gross margin from the previous season.
E) the budget should be flexible.

Question 17

_____ is NOT used in the merchandise budget to derive the planned purchases at retail figure.

A) Planned BOM inventory
B) Planned net worth
C) Planned sales
D) Planned EOM inventory
E) Planned retail reductions

Question 18

Planned purchases at retail are $50,000 and the markup percentage is 45% of retail.What is the correct planned purchases at cost figure?

A) $22,500
B) $11,111
C) $25,000
D) $77,500
E) $27,500

Question 19

Planned purchases at retail is equal to:

A) planned sales and planned reductions and BOM inventory minus planned EOM inventory.
B) planned sales and planned EOM inventory minus planned reductions and BOM inventory.
C) planned sales minus planned reductions, planned EOM inventory, and one-half BOM inventory.
D) planned sales, planned reductions, and planned EOM inventory minus BOM inventory.
E) planned sales plus planned reductions.

Question 20

_____ is (are)the retailer's total sales including sales for cash or for credit.

A) Gross margin
B) Operating sales
C) Return sales
D) Gross sales
E) Net sales

Question 21

_____ are amounts that customers owe the retailer for goods and services.

A) Total assets
B) Accounts receivable
C) Current assets
D) Operating expenses
E) Prepaid expenses

Question 22

Current liabilities include all of the following EXCEPT:

A) notes payable within the six months.
B) payroll payable.
C) mortgage payable.
D) accounts payable.
E) taxes payable.

Question 23

A(n)_____ is any legitimate financial claim against the retailer's assets.

A) goodwill
B) asset
C) account receivable
D) liability
E) cost of goods sold

Question 24

Art's Appliances has accounts payable of $65,000,payroll payable of $2,750,mortgage payable of $38,500,current notes payable of $12,000,and taxes payable of $3,100.Art's current liabilities are:

A) $12,000
B) $38,500
C) $82,850
D) $121,350
E) $178,900

Question 25

What are adjustments made in the selling price due to customer dissatisfaction with the product or service performance?

A) Insurance costs
B) Costs of goods sold
C) Goodwill
D) Net sales
E) Allowances

Question 26

The retailer's _____ is (are)considered a current asset.

A) buildings
B) fixtures
C) equipment
D) inventory
E) parking lots for customer use

Question 27

Assets are classified as:

A) cash and noncash.
B) stable and unstable.
C) current and noncurrent.
D) temporary and permanent.
E) liquid and fixed.

Question 28

_____ are those expenses that a retailer incurs in running the business other than the cost of the merchandise.

A) Total assets
B) Return expenses
C) Current assets
D) Operating expenses
E) Prepaid expenses

Question 29

The retailer's _____ is (are)NOT considered a current asset.

A) cash
B) inventory
C) accounts receivable
D) prepaid expenses
E) fixtures

Question 30

_____ are amounts owed to vendors for goods and services.

A) Notes payable
B) Payroll payable
C) Mortgage payable
D) Accounts payable
E) Taxes payable

Question 31

_____ are those items for which the retailer has already paid,but the service has not been completed.

A) Total assets
B) Accounts receivable
C) Current assets
D) Operating expenses
E) Prepaid expenses

Question 32

Which of the following items would NOT be included on the balance sheet but would BE on the income statement?

A) Noncurrent assets
B) Cost of goods sold
C) Current liabilities
D) Net worth
E) Accounts receivable

Question 33

A retailer pays taxes on its:

A) gross margin before taxes.
B) net profit before taxes.
C) net sales before taxes.
D) gross sales before taxes.
E) operating profit before taxes.

Question 34

_____ is an intangible asset,usually based on customer loyalty that a retailer pays for when buying an existing business.

A) Prepaid expenses
B) Cash
C) Goodwill
D) Inventory
E) Accounts payable

Question 35

_____ is the cost of merchandise that has been sold during the period.

A) Gross sales
B) Operating margin
C) Cost of goods sold
D) Gross margin
E) Net sales

Question 36

Net sales are:

A) gross sales less returns and allowances from customers.
B) gross sales less cost of goods sold.
C) profits less cost of goods sold.
D) cost of goods sold less returns and allowances.
E) gross margin plus fixed expenses.

Question 37

To determine net sales,a retailer should subtract _____ from gross sales.

A) inbound freight
B) returns and allowances
C) goodwill
D) an account receivable
E) other expenses

Question 38

Joe's Kites is preparing an income statement.Net sales equal $175,000.Returns and allowances equal $16,000.Costs of goods sold equal $95,000.What is Joe's gross margin?

A) $64,000
B) $80,000
C) $96,000
D) $159,000
E) $191,000

Question 39

Operating profit is the difference between:

A) net sales and returns and allowances.
B) gross margin and operating expenses.
C) gross margin and cost of goods sold.
D) cost of goods sold and returns and allowances.
E) gross sales and cost of goods sold.

Question 40

A balance sheet can be expressed as:

A) profit = sales - reductions.
B) net worth = operating profit - operating expenses.
C) net worth = assets - expenses.
D) assets = liabilities + net worth.
E) assets = sales - expenses.

Question 41

_____ are the dollar amount by which a physical inventory value is smaller than the value that the book inventory records indicate.

A) Inventory reductions
B) Discounts to cost
C) Cost allocations
D) Shortages
E) Overages

Question 42

The _____ method of inventory record keeping allows for more "inventory profits" during inflationary periods.

A) revenue
B) retail
C) LIFO
D) FIFO
E) inflationary accounting

Question 43

Which of the following is an advantage of using the retail method of inventory valuation versus the cost method?

A) Physical inventories using retail prices are subject to more error
B) Inventories need to be taken in order to prepare the accounting statements
C) Physical inventories take long periods of time to complete
D) It provides an automatic, conservative valuation of ending inventory
E) Heavy reliance on bookkeeping activities

Question 44

Which of the following is an example of a cash inflow?

A) Paying for merchandise
B) Rent expense
C) Utilities expense
D) Paying dividends
E) Sale of fixed assets

Question 45

Fashion Barn's total cost valuation of inventory is $120,000 and its total retail valuation is $300,000.The adjusted retail book inventory figure has been determined to be $250,000.Using the retail method of inventory valuation,what would be Fashion Barn's approximate closing inventory figure at cost?

A) $50,000
B) $70,000
C) $100,000
D) $130,000
E) $180,000

Question 46

Holly's Arts and Crafts had a retail inventory available for sale of $700,000,while sales were $210,000,markdowns were $5,000 and discounts were $2,000.What is the ending inventory at retail?

A) $490,000
B) $483,000
C) $485,000
D) $693,000
E) $695,000

Question 47

It is important for the retailer to remember that the merchandise budget serves no useful purpose if it cannot be understood by all decision makers.

Question 48

The terms "retailing" and "merchandising" are synonymous.

Question 49

The total cost valuation of a retailer's inventory is $75,000 and the total retail valuation is $130,000.Approximately how much of every retail sales dollar is made up of merchandise cost?

A) 36.6 cents
B) 42.3 cents
C) 57.7 cents
D) 73.3 cents
E) $1.73

Question 50

The greatest uncontrollable variable every retailer must face is movement of holidays.

Question 51

Your have just calculated the cost complement.Under the retail method of inventory valuation,what do you do next?

A) Determine planned sales
B) Calculate reductions from retail value
C) Convert adjusted retail book inventory to cost
D) Determine planned purchases at cost
E) Determine the cost complement's inverse

Question 52

When physical inventory value exceeds book inventory value a retailer is said to have:

A) excess profits.
B) shortages.
C) overages.
D) markups.
E) inventory gains.

Question 53

A statement of cash flow:

A) lists all income and expenses for a given time period.
B) involves forecasting the cash value of the retailer's inventory.
C) involves forecasting the present value of accounts receivable.
D) explains the changes in cash and cash equivalents from one accounting period to the next by showing all cash inflows and all cash outflows for the given time period.
E) shows if the firm made money over a given time period.

Question 54

By using a retail reporting calendar,retailers are able to make direct comparisons to prior years.

Question 55

The first step in developing a merchandise budget is to determine the buyer's planned profit objective for the season.

Question 56

Which of the following types of retail operations would be most likely to use the cost method of inventory valuation?

A) A grocery store
B) A antique furniture store
C) A full-line department store
D) A discount department store
E) A bakery

Question 57

An excess of physical inventory over book inventory is usually caused by:

A) customer shoplifting.
B) markdowns.
C) bookkeeping errors.
D) too high of markups.
E) employee discounts.

Question 58

Most retailers have four seasons a year (1)spring (2)summer (3)fall and (4)winter.

Question 59

Which of the following is an example of a cash outflow?

A) Cash sales
B) Taxes
C) Collecting accounts receivable
D) Collecting notes receivable
E) Sale of stock

Question 60

A merchandise budget is a plan of projected sales for an upcoming season,when and how much merchandise is to be purchased,and what markups and reductions will likely occur.

Question 61

Sabriya's Hats has a gross margin of $100,000 and operating expenses of $75,000.Operating profit equals $25,000.

Question 62

An income statement provides a summary of the sales and expenses for a given time period,usually monthly,quarterly,seasonally,or annually.

Question 63

It is just as bad to have too much inventory on hand as it is to have too little.

Question 64

Reductions should be included in a merchandise budget only when they exceed 5% of sales.

Question 65

Too often,inexperienced retailers believe that taking a reduction is an admission of error.

Question 66

Markdowns,employee discounts,and stock shortages are all various forms of reductions.

Question 67

Cost of goods sold is the cost of merchandise that has been sold during the period.

Question 68

A retailer's planned purchase for a particular month are equal to the retailer's planned sales reductions,and desired EOM minus the retailer's BOM for that month.

Question 69

A retailer's beginning-of-the-month (BOM)inventory for one month is always equal to the end-of-the month (EOM)inventory for the previous month.

Question 70

Gross margin is the difference between net sales and cost of goods sold or the amount available to cover operating expenses and produce a profit.

Question 71

Asha's Boats has gross sales of $300,000 and cost of goods sold of $100,000.Net sales equals $200,000.

Question 72

A stock-to-sales ratio represents the amount of stock a retailer needs to have on hand at the end of the month compared to the sales recorded during the month.

Question 73

Operating profit is gross margin less operating expenses.

Question 74

The income statement is also referred to as the balance sheet..

Question 75

Net sales is gross sales less returns and allowances from customers.

Question 76

The stock-to-sales ratio will fluctuate on a monthly basis because sales tend to fluctuate monthly.

Question 77

Operating expenses are those expenses that the retailer incurs in the operation of the business,other than the cost of goods sold.

Question 78

Stock-to-sales ratios always express inventory levels at retail,not cost.

Question 79

Operating expenses include rent,wages,utilities,depreciation,and insurance.

Question 80

A stock/sales ratio of 2.5:1 suggests that a retailer should have $2.50 in inventory (at retail price)for every $1 of forecasted sales.