Deck 12: Cost Analysis

Question 1

One reason that a majority of firms do not use the four bases of profitability (products,territories,salespeople and customers)is that most accounting systems are not designed to meet the needs of the marketing manager.

Answer 1

True

Question 2

Critical to an assessment of a customer's lifetime value is an analysis of the costs associated with doing business with that customer.

Answer 2

True

Question 3

To assess the profit contribution of each salesperson,it is necessary to allocate all costs that bear some causal relationship to selling to each salesperson.

Answer 3

True

Question 4

While sales analysis focuses on the results achieved,cost analysis looks at the costs incurred in producing those results and whether the returns justify the expenditures.

Question 5

Costs should be allocated according to a product's sales volume.

Question 6

The profitability analysis by sales representative includes an allocation for the manager of the warehouse where the inventory being sold is stored.

Question 7

It is relatively simple to conduct a cost or profitability analysis.

Question 8

All sales are achieved at some cost.

Question 9

Delivery cost for plastic polymer film to shrink wrap yo-yos is an example of a direct cost.

Question 10

The first step in conducting a market profitability analysis is to specify the purpose of the cost study and determine functional cost centers.

Question 11

Sales and cost analyses are important tools for a sales manager because they measure the results achieved and the costs of producing those results.

Question 12

Accounting-based costing (ABC)identifies the cause-and-effect relationship between costs and desired organizational outcomes.

Question 13

Functional cost groups include selling,advertising,storage and shipping and transportation.

Question 14

If a manufacturer sold 4,500 bicycles and spent $67,500 advertising expenses for the bicycles during the same period,then the advertising expense allocated to each salesperson would be $15 per bike.

Question 15

Contribution margin advocates argue that costs should be arbitrarily allocated.

Question 16

An argument that supports the contribution-margin approach is the fact that most marketing phenomena are highly interrelated.

Question 17

Marketing costs analysis cannot help managers identify opportunities for increasing the effectiveness of marketing expenditures.

Question 18

The cost of renting a warehouse to store component parts for making various sizes of electric generators is an example of a general expense.

Question 19

One reason marketing managers have neglected consideration of costs is that accounting systems were designed to report aggregate effects of the firm's operations.

Question 20

The real benefit of marketing cost analysis is the opportunity it provides managers to isolate segments of the business that are most profitable as well as those that generate losses.

Question 21

Olivia wants to better allocate her sales force.She gathers sales and cost data and studies the ________________ relationships.

A)Sales/revenue
B)Output/input
C)Cost/input
D)ABC/ROAM
E)All of the above

Question 22

Cost and profitability analyses are much more commonly used than sales analyses.
Multiple Choice Questions

Question 23

A(n)_____________ can be specifically identified with a product or function.

A)Indirect cost
B)Expense
C)General expense
D)Indirect expense
E)Direct cost

Question 24

The essence of marketing cost analysis is to ___________ cost data.

A)Gather
B)Classify
C)Compare
D)Study
E)All of the above

Question 25

A key factor in determining the overall profitability of each customer is

A)The cost of goods produced
B)The pricing authority of salespeople
C)Competitiveness of the derived demand
D)Returns on assets managed
E)Full-cost accounting

Question 26

Tyrone is attempting to measure the long-term value or profitability of his customers.Tyrone is measuring

A)Sales per customer per quarter
B)Current operating profit minus direct costs
C)Gross revenue minus net revenue
D)Lifetime value of the customer
E)Relationship revenue minus overhead costs

Question 27

Return on assets managed equals contribution of the asset as a percentage of sales multiplied by the inventory turnover rate.

Question 28

__________ reflect the other costs incurred in operating a business,such as advertising.

A)Indirect costs
B)Expenses
C)General expenses
D)Indirect expenses
E)Costs

Question 29

While sales analysis focuses on __________,cost analysis looks at the costs ________________ in producing those results.

A)Leadership;activated
B)Management expectations;expected
C)Results achieved;incurred
D)Net revenue;anticipated
E)Market share;foregone

Question 30

Companies are more likely to conduct _______ analysis than profitability analysis

A)Sales
B)Headquarters
C)Customer relationship management
D)Production
E)Accounting

Question 31

Wilton is assessing the lifetime value of his customers.As part of his analysis,he will most likely assess

A)The potential for new business
B)Current advertising costs
C)Past indirect sales costs
D)Time delay order processing
E)All of the above

Question 32

If they do profitability analysis,companies are most likely to do it for

A)Products
B)Customers
C)Territories
D)Salespeople
E)Management

Question 33

Which of the following is NOT one of the bases for profitability analysis?

A)Products
B)Customers
C)Territories
D)Management
E)Salespeople

Question 34

A(n)_____________ is a shared cost tied to several functions or products.

A)Indirect cost
B)Expense
C)General expense
D)Indirect expense
E)Direct cost

Question 35

Alex is struggling with his company's new financial accounting system.He knows the key is to understand how _____________ so that True profitability can be determined.

A)Sales are allocated
B)Advertising is measured
C)Costs are allocated
D)Territories are defined
E)Products are produced

Question 36

A company that manufactures livestock trailers,dog houses,portable utility buildings and carport covers wants to do a marketing cost analysis.Which of the following is the best example of a direct cost?

A)The salary of the company's CEO
B)Travel expenses for its most productive sales rep
C)An ad in Better Homes & Gardens focusing on how well its products are manufactured
D)A brochure describing the features of its livestock trailers
E)A sales contest to support a push growth strategy

Question 37

The term __________ is often restricted to the materials,labor,power,rent and other items used in making the product.

A)Indirect cost
B)Expense
C)General expense
D)Indirect expense
E)Cost

Question 38

Marketing cost analysis can be used by sales managers to

A)Deploy the firm's salespeople most effectively
B)Assess output/input relationships by product
C)Assess output/input relationships by territory
D)Assess output/input relationships by customer
E)All of the above

Question 39

Which of the following statements about marketing cost analysis is True?

A)Marketing productivity focuses on the sales or profit output per unit of production input
B)The purpose of marketing cost analysis is to estimate customer relationships by territory,customer and channel of distribution
C)When given a choice,sales manager prefer to use marketing cost analysis more than sales analysis for managing the sales function
D)Marketing cost analysis focuses on the results achieved to determine if the returns justify the expenditures
E)Any accounting system can be easily adapted to give the information needed for a marketing cost analysis

Question 40

Jerry wants to measure marketing productivity.He will focus on

A)Gross revenue minus overhead
B)Sales or profit per unit of marketing effort
C)Marketing costs divided by sales
D)Order processing time versus return on assets managed
E)Direct selling costs

Question 41

EMI,a manufacturer of aluminum conveyor belts,allocates costs such as salaries,advertising,warehouse rent,office supplies and travel expenses.EMI uses the _____ approach to marketing cost analysis.

A)Contribution-margin
B)ROAM
C)Gross-margin
D)Full-contribution
E)Net profit

Question 42

Which of the following statements about how a manufacturer categorizes its costs and expenses is True?

A)The manufacturer of a laser printer would categorize the cost of shipping that printer as a specific expense
B)A sales promotion display for selling vinyl siding would be a general expense if the territory were the object of measurement
C)The salary of the product line manager would be an example of a direct cost if the territory were the object of measurement
D)The travel expenses for a pharmaceutical salesperson who sells multiple products would be an example of a direct cost
E)Advertising is a specific expense

Question 43

The first step in conducting a cost analysis is to:

A)Determine whether to use a full-cost or a contribution-margin approach
B)Allocate natural costs to functional cost centers
C)Break costs of revenues into relatively large blocks so that little meaning is lost within each block
D)Determine which segment of the population most needs to be analyzed
E)Specify the purpose for which the study is being done

Question 44

Which of the following statements about how a manufacturer categorizes its costs and expenses is True?

A)A general expense is much like a direct cost in that it cannot be identified directly with a specific object of profit measurement,such as a territory,salesperson or product
B)All costs are categorized as either direct or indirect-but never as both
C)A salesperson's salary would be a direct cost for his or her territory,but an indirect cost for the product sold
D)Advertising is a direct cost
E)A specific expense is much like a direct in that it can generally be identified with a wide range of products and functions

Question 45

When assessing segment performance,indirect costs should

A)Be minimized
B)Not be allocated
C)Be quantified and allocated proportionally
D)Be turned into direct costs
E)Be maximized and then subtracted from direct costs

Question 46

A company that manufactures specialized database-gathering software for retailers,physicians,lawyers and anyone else that needs a database wants to do a marketing cost analysis.If it uses product as its object of measurement,then a particular sales representative's compensation is an example of a(n):

A)General expense and direct cost
B)Indirect cost and general expense
C)Direct cost and specific expense
D)Specific expense and indirect expense

Question 47

The determining factor of whether an expense is specific or general is:

A)Whether it can be linked to a particular product
B)Whether it is categorized as part of cost of goods sold or part of general and administrative expenses
C)Whether the company used the full-cost or contribution-margin approach
D)The object of measurement being used
E)Whether the focus of the analysis is on the net profit or net expenses

Question 48

A company that manufactures lighting fixtures wants to do a marketing cost analysis based on customer (home owner,commercial and institutional).Which of the following is the best example of a general expense?

A)The cost of setting up a booth at a trade show for home decorators
B)The cost of developing a team selling sales presentation to sell lighting to a chain of hospitals
C)A sales contest to encourage sales reps to locate new commercial buyers
D)The cost of shipping 400 fluorescent light fixtures to a newly built middle school
E)None of the above

Question 49

Full-cost approach advocates argue that:

A)Many indirect costs can be assigned based on a demonstrated cost relationship
B)Each unit (territory,customer or product)should bear only the direct costs which it incurred
C)Prorating indirect costs is unnecessary and illogical
D)Companies that use a contribution-approach cannot uncover problem areas (products,customers or territories)
E)The terms costs and expenses should be used interchangeably

Question 50

R&G sells lighting fixtures to homeowners,government institutions and commercial buyers.Its sales force is organizing according to customer.The following is a profit and loss statement for each division using the full-cost approach:
If the division selling to homeowners was eliminated and the remaining costs were allocated to the commercial and institutional divisions,what would be the net profit/loss for the institutional division?

A)($19,000)
B)($24,000)
C)($31,000)
D)($36,000)
E)Cannot be determined from the information given

Question 51

R&G sells lighting fixtures to homeowners,government institutions and commercial buyers.Its sales force is organizing according to customer.The following is a profit and loss statement for each division using the full-cost approach:
What would an advocate of the full-cost approach to marketing cost analysis do with this information?

A)Re-allocate costs to cover the loss to homeowners
B)Eliminate the division that sells to homeowners
C)Wait another year to see if the loss occurs again
D)Do a trend analysis of the net profits/losses of this division to forecast what will happen in upcoming years
E)Put more sales effort into the commercial division to take advantage of the "easy" profits

Question 52

Contribution-margin advocates argue that:

A)Costs should be distinguished according to where they are incurred
B)All revenues should be reduced by all fixed and variable costs accrued by the segments earning that revenue
C)It is misleading to allocate costs arbitrarily
D)There is no such thing as arbitrary cost allocation
E)The full-cost approach cannot be used to determine the profitability of a product,territory or customer

Question 53

In activity-based costing,the three informational components to the company are

A)Channels,products and vendors
B)Customers,channels and costs
C)Resources,activities and cost objects
D)Drivers,Products and customers
E)Products,products,products

Question 54

Which of the following is the best example of a natural account?

A)Office supplies
B)Salaries
C)Transportation
D)Raw materials
E)All of the above

Question 55

Which of the following statements about the general procedure used to conduct a cost or profitability analysis is True?

A)The first step in conducting a cost or profitability analysis is to spread the natural account costs to the appropriate functional cost centers
B)Before determining the purpose of the cost analysis,natural cost centers must be identified
C)Before determining the purpose of the profitability analysis,natural account costs must be allocated to functional cost centers
D)Good profitability analyses require that the various costs be partitioned into direct and indirect expenses so the proper aggregations can be made
E)Natural accounts are the only way that costs can be classified for either a profitability or cost analysis

Question 56

R&G sells lighting fixtures to homeowners,government institutions and commercial buyers.Its sales force is organizing according to customer.The following is a profit and loss statement for each division using the full-cost approach:
Calculate the contribution for the homeowners division,if R&G had used the contribution-margin approach?

A)($10,000)
B)$10,000
C)$30,000
D)$50,000
E)Cannot be determined from the information given

Question 57

In the contribution margin approach,any excess revenues over costs

A)Equals profits
B)Contributes to common costs and profits
C)Results in negative amortization
D)Offsets activity-based accounts
E)Reduces warehousing and production costs

Question 58

In the contribution margin approach,a ___________ margin is calculated while in a full-cost approach a ________ margin is calculated.

A)Gross;contribution
B)Singular;sequential
C)Contribution;gross
D)Minimal;Maximum
E)Below-cost;above cost

Question 59

A manager is using a full-cost approach,then allocating fixed costs on the basis of sales volume as a way of analyzing marketing costs.This method could:

A)Result in a decrease of profitability for the entire company
B)Create an environment that limits the total sales that can be made
C)Create an environment where high-volume customers appear more profitable than they actually are
D)Create an environment where low-volume customers appear more profitable than they actually are
E)Do all of the above

Question 60

Sales managers are typically LEAST concerned with the profitability of:

A)Regions
B)Customers
C)Divisions
D)Products
E)Salespeople

Question 61

What is the difference between a direct cost and an indirect cost?

Question 62

Which of the following is the best example of a functional account?

A)Order processing
B)Office supplies
C)Rent
D)Electricity
E)Raw materials

Question 63

What is the difference between specific and general expenses?

Question 64

Angellini,Inc.makes three kinds of conveyors for food manufacturers in the Southeastern states-the Model 3115B,the Model 510 and the Model 610A.
Based on the marketing cost analysis,it is obvious that _____ should be terminated because he produces the lowest contribution margin.

A)Harvey
B)Sims
C)Jacobs
D)None of the above

Question 65

How does Angellini,Inc. ,allocate its sales force commissions?

A)On the basis of conveyors sold
B)On the basis of gross margin for each product line
C)On the basis of contribution margin of each product line
D)On the basis of sales efficiency of the individual salespeople
E)Cannot be determined from information given

Question 66

ROAM (return on assets managed)equals:

A)Inventory turnover times the net profit
B)Accounts receivable plus inventories plus fixed assets divided by the contribution margin
C)Contribution as a percentage of sales times the asset turnover rate
D)The liquidity ratio divided by the turnover ratio
E)Number of salespeople divided by the number of sales each made

Question 67

Why should costs not be allocated based on sales volume?

Question 68

Allocating costs by sales volume FAILS to:

A)Achieve cost efficiency
B)Increase sales
C)Recognize the purpose of the cost incurred
D)Estimate the profit potential
E)Sum the allocated cost functional responsibility

Question 69

Which of the following statements describes a disadvantage associated with marketing cost analyses?

A)The financial data need to be available in great detail
B)Some of the data needed for the analysis is costly to generate
C)Marketing cost analysis requires a sophisticated information system
D)There is sometimes great difficulty involved with allocating expenses to the satisfaction of all concerned
E)All of the above describes disadvantages associated with marketing cost analyses

Question 70

What are the three bases of cost allocation?

Question 71

What is the distinction between a cost and an expense?

Question 72

What is the difference between natural and functional accounts?

Question 73

The reason for the low profitability of the Model 610A conveyor appears to be:

A)The higher commission rate assigned on sales of this product
B)Low gross margin
C)Too much advertising for the given level of sales
D)Not enough administrative support
E)Inadequate distribution system

Question 74

What activities are involved when doing marketing cost analysis?

Question 75

Angellini,Inc.makes three kinds of conveyors for food manufacturers in the Southeastern states-the Model 3115B,the Model 510 and the Model 610A.
Based on the marketing cost analysis,it is obvious that _____ should be deleted from Angellini's product line.

A)Model 3115B
B)Model 510
C)Model 610A
D)None of the above

Question 76

Which of the following statements about the use of ROAM (return on assets managed)is True?

A)ROAM is a highly subjective measure
B)The goal of ROAM is to reach an optimal level of investment
C)Sales managers have eagerly adopted ROAM as a measure of effectiveness
D)ROAM is calculated using contribution margin and asset liquidity
E)ROAM cannot be used as a control device

Question 77

All of the following are disadvantages associated with a marketing cost analysis EXCEPT:

A)The high cost of the data needed for the analysis
B)The difficulty associated with determining allocation bases
C)The amount of detail information needed for an analysis
D)The lack of tangible profit as a result of such an analysis
E)The need for a sophisticated computer system to perform such an analysis

Question 78

The warehousing expenses allocated to each salesperson would include:

A)Packaging costs for each product sold
B)The salary of the security guard for the warehouse
C)The rental fee on the forklift used by warehouse personnel
D)The salary of the warehouse supervisor
E)The costs to repair a leak in the warehouse ceiling

Question 79

The real benefit of a marketing cost analysis is:

A)The way it highlights all inefficiency within a company
B)As a planning tool
C)As an evaluation tool
D)As a decision-making tool for sales managers when they are contemplating terminations or product deletions
E)The opportunity it provides managers to isolate segments of the business that are most profitable as well as those that generate losses

Question 80

The most likely explanation for Sims's lower contribution margin is his:

A)Inability to earn commissions
B)Emphasis on keeping expenses low
C)High salary
D)Low sales of Model 510
E)Inefficient use of his resources