Deck 16: Financial Merchandise Management

Question 1

The planning and monitoring of a retailer's financial investment in merchandise over a stated time period is _____.

A)dollar control
B)a central unit
C)unit control
D)open-to-buy decision making

Answer 1

A

Question 2

A plan that specifies exactly which products (goods and services)are purchased,when products are purchased,and how many products are purchased is a _____ plan.

A)unit control
B)dollar control
C)never-out
D)financial merchandise

Answer 2

D

Question 3

Cost-based inventory valuation systems are most useful to retailers with _____.

A)low pilferage/shrinkage
B)rapidly rising inventory valuations
C)low inventory turnover
D)high markdown levels

Answer 3

C

Question 4

What accounting method gives retailers a tax advantage when inventory values are rising?

A)cost method of accounting
B)retail method of accounting
C)LIFO
D)FIFO

Question 5

Markdowns,employee discounts,and stock shortages are examples of _____.

A)LIFO accounting entries
B)pilferage
C)deductions from retail value
D)entries in the cost method of accounting

Question 6

Closing inventory value is determined by calculating the average relationship between the cost and retail values of merchandise available for sale during a period in _____.

A)the cost method of accounting
B)the retail method of accounting
C)LIFO
D)FIFO

Question 7

Difficulty in adjusting inventory values to reflect style changes is a problem associated with _____.

A)the cost method of accounting
B)the retail method of accounting
C)FIFO
D)LIFO

Question 8

A major disadvantage of the retail method of accounting is _____.

A)that it does not reflect markdowns
B)that perpetual inventory systems must be maintained
C)that book inventory value cannot be computed
D)the requirement of a detailed bookkeeping system

Question 9

When a physical inventory is conducted in the cost method of accounting,_____.

A)additional markups must be calculated
B)deductions from retail value must be determined
C)the cost complement must be computed
D)the costs of each item must be ascertained

Question 10

Two methods of setting the costs of inventory on hand are _____.

A)inside and outside
B)book and physical
C)FIFO and LIFO
D)adjusted (for shortage/overages)and unadjusted

Question 11

A major advantage of the retail method of accounting is that _____.

A)costs do not have to be decoded
B)a physical inventory is required to prepare an operating statement
C)frequent operating statements are not possible or necessary
D)no adjustments to inventory values need be recorded

Question 12

A major advantage to the retail method of accounting is the _____.

A)ease of bookkeeping
B)accuracy of the cost complement figure
C)ability to prepare a profit-and-loss statement on the basis of book inventory figures
D)freedom from even having to take a physical inventory

Question 13

The cost method of accounting does not enable a retailer to determine gross profit until _____.

A)a physical inventory is undertaken
B)taxes are determined
C)costs are determined
D)retail prices are determined

Question 14

A major disadvantage to the cost method of accounting is that _____.

A)markdowns must be computed
B)costs must be assigned to each item in stock
C)sales receipts must be calculated
D)purchases must be determined

Question 15

Beginning inventory + purchases + transportation charges equals the _____.

A)gross profit
B)cost of goods sold
C)cost complement
D)cost of merchandise available for sale

Question 16

The cost of merchandise available for sale minus the value of ending inventory at cost equals the _____.

A)gross profit
B)cost of goods sold
C)beginning inventory
D)open-to-buy

Question 17

Under which method is it assumed that old stock is sold first and that new stock remains on the shelves?

A)FIFO
B)retail method of accounting
C)LIFO
D)cost method of accounting

Question 18

The difference between the retail book value of ending inventory as compared to the actual physical ending inventory value is _____.

A)an overage (only)
B)a shortage (only)
C)either a shortage or an overage
D)the cost complement

Question 19

The cost complement is the _____.

A)adjusted retail book value times gross margin
B)total cost of goods sold divided by total retail sales
C)total retail valuation times 0.7
D)total cost valuation divided by the total retail valuation

Question 20

Merchandise categories for which data are gathered are known as _____.

A)price-line classifications
B)control units
C)standard merchandise classifications
D)UPC classifications

Question 21

Sales forecasts for price line classifications within a department are generally based on _____.

A)regression models
B)simulation
C)experimentation
D)qualitative techniques

Question 22

The difference between merchandise available for sale and the cost of goods sold is that the cost of goods sold includes _____.

A)beginning inventory
B)operating expenses
C)transportation charges
D)ending inventory

Question 23

The major difference between gross and net profit is that net profit _____.

A)includes transportation charges
B)uses a cost complement calculation
C)is based on LIFO,while gross profit is based on FIFO
D)deducts retail operating expenses

Question 24

A major advantage of the open-to-buy concept is that it _____.

A)underestimates demand
B)limits foreign sales
C)seeks to balance stock on hand and planned sales
D)controls stock shortages

Question 25

A furniture retailer has yearly sales of $1,800,000.Beginning-of-year inventory (at cost)equals $400,000;ending inventory (at cost)is $270,000.The yearly purchases are $700,000 and transportation charges are $5,700.The retailer's gross profit equals _____.

A)$735,700
B)$964,300
C)$1,000,000
D)$1,005,700

Question 26

Information from merchandise tags or product labels is recorded directly into in-store computer terminals for immediate data processing in a _____ system.

A)point-of-sale
B)visual inspection
C)manual perpetual inventory
D)stock-counting

Question 27

Stock levels at which new orders must be placed are known as _____.

A)reorder points
B)usage rates
C)order lead time
D)safety stock

Question 28

The relationship between gross margin in dollars and the average investment at cost is known as _____.

A)asset turnover
B)gross margin return on investment
C)the strategic profit model
D)inventory turnover

Question 29

An advantage to a high level of stock turnover is that _____.

A)there are few lost sales
B)quantity discounts are high
C)merchandise on shelves is fresh
D)low prices affect gross margins

Question 30

The difference between planned purchases and purchase commitments already made by a buyer for a given time period is _____.

A)the cost complement
B)the required initial markup percentage
C)reduction planning
D)the open-to-buy

Question 31

A furniture retailer has a beginning-of-year inventory (at cost)of $400,000;ending inventory (at cost)is $270,000.Yearly purchases are $700,000 and transportation charges equal $5,700.The retailer's merchandise available for sale during the year is _____.

A)$570,000
B)$575,700
C)$735,700
D)$1,105,700

Question 32

A running total of the number of units handled by a retailer involves a _____ system.

A)point-of-sale
B)stock-counting
C)perpetual inventory unit control
D)visual inspection

Question 33

Holding costs include _____.

A)computer time
B)inventory investment costs
C)purchase order costs
D)credit verification costs

Question 34

Which of the following is not a control unit?

A)monthly sales by store department
B)total retail sales per census tract
C)price line classifications
D)standard merchandise classifications

Question 35

Order lead time is defined as _____.

A)average sales per day
B)extra inventory kept on hand to protect against stockouts
C)the stock level at which an order must be placed
D)the time period from when an order is placed until goods are ready for sale

Question 36

A furniture retailer has a beginning-of-year inventory (at cost)of $400,000;ending inventory (at cost)is $270,000.Yearly purchases are $700,000 and transportation charges equal $5,700.The retailer's cost of goods sold is _____.

A)$570,000
B)$575,700
C)$835,700
D)$1,105,700

Question 37

The use of stock cards for goods displayed on pegboards illustrates a _____ system.

A)perpetual inventory
B)point-of-sale
C)visual inspection
D)stock-counting

Question 38

Inventory on hand,purchases,sales volume,and shortages are recorded through observation in a _____ system.

A)visual inspection
B)stock-counting
C)perpetual inventory
D)point-of-sale

Question 39

Economic order quantity formulas seek to balance _____.

A)stock levels and profits
B)stock levels and sales
C)order-processing and order-holding costs
D)stock levels,sales,and stockouts

Question 40

A retail buyer purchases an amount equal to planned sales plus a basic stock in the _____ method.

A)weeks' supply
B)basic stock
C)percentage variation
D)stock-to-sales

Question 41

A firm's ending retail book value of inventory is $200,000.Its stock shortages are $15,000.If its cost complement is 0.63,what is its closing inventory at cost?

A)$9,450
B)$116,550
C)$166,000
D)$170,150

Question 42

If a retailer's average monthly sales are $253,000,what would its average monthly sales index equal?

A).25
B)100
C)253
D)The answer cannot be determined from the information provided.

Question 43

A handbag retailer plans to sell $40,000 worth of handbags in January.Planned reductions are $2,000.Planned inventory for January 1st is $70,000 and planned inventory for January 31st is $60,000.As of January 8th,the retailer has ordered $6,000 worth of handbags for January delivery.What is the open-to-buy for the rest of the month?

A)$26,000
B)$32,000
C)$36,000
D)$52,000

Question 44

A firm's ending retail book value of inventory is $30,000.A physical inventory (at retail)shows a value of $24,250.If the retailer's cost complement is .8,what is the ending inventory value at cost?

A)$19,400
B)$24,000
C)$27,250
D)$30,000

Question 45

A retailer uses the weeks' supply method of inventory-level planning.Average weekly sales during a 4-month period are forecast to be $7,500;the retailer wants to stock 9 weeks of merchandise.What should the planned average inventory level be during this period?

A)$67,500
B)$73,000
C)$262,800
D)$292,000

Question 46

Which statement concerning reduction planning is not correct?

A)Changes in pilferage control will affect reduction planning.
B)Reductions can include markdowns,employee discounts,and stock shortages.
C)Reduction planning is crucial in the cost method of retail accounting.
D)Merchandise carryover from one period to another affects the magnitude of reductions.

Question 47

An example of classification merchandising for a hardware retailer is recording sales by _____.

A)season
B)time of day
C)hammers,less than $5;hammers $5-$10
D)hardware - do-it-yourself;hardware - commercial

Question 48

If a cost complement is 0.8,that means _____.

A)the firm has a gross margin of 80 percent
B)80 cents of each retail sales dollar covers the merchandise cost
C)stock shortages are 20 percent of sales
D)the firm is profitable

Question 49

A retailer expects monthly sales to be $100,000 and planned reductions from sales to be 8 percent of sales.The retailer wants ending inventory to be $20,000 greater than beginning inventory.Planned purchases at retail are _____.

A)$100,000
B)$120,000
C)$127,200
D)$128,000

Question 50

The adjusted ending retail book value of inventory adjusts the ending retail book value of inventory to reflect _____.

A)markdowns
B)sales
C)stock shortages and stock overages
D)employee discounts

Question 51

A retailer's ending retail book value of inventory is $130,677.A physical inventory (at retail)equals $133,237.The retailer _____.

A)has a stock overage of $2,560
B)has a short shortage of $2,560
C)switched from FIFO to LIFO
D)switched from LIFO to FIFO

Question 52

A retailer using the basic stock method wants its average monthly stock to equal 20 percent of its average monthly sales.Next year's sales are forecast at $2,400,000.Planned sales for January are $340,000.What is the January 1 planned inventory value (at retail)using the basic stock method?

A)$380,000
B)$400,000
C)$432,000
D)The answer cannot be determined from the information provided.

Question 53

If legally allowed,during periods of rising inventory values,a retailer using the FIFO (first-in-first-out)method could reduce its tax liability by _____.

A)using the cost method of retail accounting
B)maintaining a book inventory
C)calculating deductions from retail value
D)switching to LIFO

Question 54

A retailer has anticipated yearly expenses of $300,000,a net profit objective of $72,000,planned reductions of $24,000,and planned net sales of $1,000,000.What is its required initial markup percentage?

A)30.0
B)37.2
C)38.7
D)39.6

Question 55

A retailer maintains a book (perpetual)inventory system in which all figures are kept at cost values.The beginning-of-month inventory as of December 1 is $100,000;the purchases in December equal $80,000;and December's sales (at cost)equal $63,000.The beginning of month inventory for January 1 then equals _____.

A)$70,000
B)$117,000
C)$170,000
D)$233,000

Question 56

In preparing a retail method of accounting worksheet,your accountant has provided you with the following data: December 1,20XX - December 31,20YY
At Cost At Retail
Beginning inventory $ 70,000 135,000
Net purchases 650,000 1,300,000
Additional markups --- 100,000
Transportation charges 12,000 ---
What is the correct cost complement?

A).48
B).50
C).52
D)2.1

Question 57

A firm's average monthly sales are $250,000.If December's sales are $445,000,its monthly sales index is _____.

A).51
B)2.10
C)48
D)178

Question 58

If a firm's sales index in January is 63 and average monthly sales are $200,000,what is the January sales level?

A)$12,600
B)$126,000
C)$200,000
D)$363,000

Question 59

A retailer plans retail expenses for the following year to be 30 percent of net sales,desires a 5 percent (of net sales)profit margin,and assumes total reductions will be 8 percent of net sales.What is its required initial markup percentage?

A)35.0
B)39.8
C)43.0
D)The answer cannot be determined from the information provided.

Question 60

A retailer uses the percentage variation method in inventory level planning.If the store plans an average monthly stock of $200,000 and September sales are estimated at 15 percent more than average,the store's planned inventory level for September is _____.

A)$120,000
B)$200,000
C)$215,000
D)$230,000

Question 61

A significant disadvantage to the retail method of accounting is the required detailed bookkeeping system.

Question 62

Stock shortages may be due to pilferage,bookkeeping errors,and undershipments by vendors.

Question 63

A camera retailer estimates that it can sell 1,000 rolls of film each year.Each roll costs the retailer $1.50;holding costs equal 25 percent of unit costs;and order costs are $15 per order.The economic order quantity is _____ rolls.

A)173
B)283
C)375
D)500

Question 64

The cost method of accounting requires that the cost of each item be coded on a price tag or merchandise container.

Question 65

A retailer uses a 20-unit reorder point based on assuming a 3-day lead time,a 5-day usage rate,and a 5-unit safety stock.In how many days will a stockout occur if the lead time becomes 7 days and the usage rate continues at 5 units per day?

A)0
B)2
C)3
D)4

Question 66

In the cost method of accounting,gross profits can be computed monthly if a physical inventory is conducted on a quarterly basis.

Question 67

Deductions from retail value in the retail method of accounting include sales,markdowns,and employee discounts.

Question 68

A retailer's cost complement is equal to its gross margin.

Question 69

A firm's usage rate is 25 units and its lead time is 10 days.Its safety stock requirement is 40 units.Its reorder point is _____ units.

A)250
B)290
C)400
D)425

Question 70

Keeping a perpetual inventory unit control system has been most facilitated by _____.

A)store planograms
B)rationalized retailing
C)barcoding and point-of-sale systems
D)manual systems that record merchandise transfers

Question 71

A retailer uses a stock-counting-based physical inventory system.Its beginning inventory on January 1 is 370 units and total purchases in January are 155 units.Sales for January are 265 units.A physical count of goods as of February 1 reveals 243 units.Stock shortages for the period equal _____.

A)10
B)17
C)29
D)98

Question 72

Under the FIFO accounting method,it is assumed that old stock is sold last and the new stock remains on the shelves.

Question 73

A book or perpetual inventory system allows gross margins to be calculated with a cost method of accounting system.

Question 74

The cost complement is an average figure based upon the total cost of merchandise and its total retail value.

Question 75

A retailer uses a reorder point of 60 units.If its usage rate is 10 and its lead time is 6,what is its safety stock?

A)0
B).6
C)6
D)10

Question 76

Firms with perpetual inventory systems and reorder point data can utilize _____.

A)automatic reordering systems
B)GMROI data
C)management exception reports
D)economic order quantities

Question 77

A retail firm has net annual sales of $6,000,000.Its average monthly inventory at hand (at retail)was $1,500,000.Its annual rate of stock turnover is _____.

A)0.25
B)3.0
C)3.5
D)4.0

Question 78

A firm with a gross margin as a percent of sales of 20 and a sales-to-stock ratio of 5 has a GMROI of _____.

A)20
B)75
C)100
D)400

Question 79

A retailer's gross margin equals $500,000.Its net sales are $1,000,000 and average inventory at cost equals $250,000.Its GMROI is _____ percent.

A)11.8
B)47
C)53.2
D)200

Question 80

Each month's sales are divided by total yearly sales and then multiplied by 100 to compute the monthly sales index.