Deck 23: Marketing Arithmetic

Question 1

Net sales is the total value at cost of all the products sold during an operating period.

Answer 1

False

Question 2

The main purpose of an operating statement is to determine a company's net profit over a specified period of time--and present data to support that figure.

Answer 2

TRU E

Question 3

The net cost of delivered purchases equals the original invoice cost of purchases plus purchase discounts minus freight charges.

Answer 3

False

Question 4

A measure of the number of times the average inventory is sold during a year is stockturn rate.

Question 5

A company's gross margin must cover all the costs of making and selling the products, and hopefully leave a reasonable net profit.

Question 6

It is impossible for a firm's stockturn rate to equal 1.0.

Question 7

The total value AT COST of all the products sold during an operating period is the cost of sales.

Question 8

"Expenses" (on an operating statement) usually include the cost of sales--both purchased and produced.

Question 9

The three main components of an operating statement are costs, assets, and profit.

Question 10

The stockturn rate shows how rapidly a firm's inventory is moving.

Question 11

Returns or allowances are subtracted from net sales to find gross sales on an operating statement.

Question 12

Purchase discounts should be subtracted from the original invoice cost of purchases to get the net cost of purchases.

Question 13

The three main components of an operating statement are sales, costs, and profit or loss.

Question 14

Monthly operating statements might be used to uncover unfavorable trends in sales, costs, and profit.

Question 15

Gross margin (or gross profit) is the amount left over after the cost of sales is subtracted from net sales.

Question 16

Gross margin (or gross profit) is the amount left over after the cost of sales is subtracted from gross sales.

Question 17

"Cost of sales" equals the total value of all the products purchased during an operating period plus freight in.

Question 18

An operating statement is a simple summary of a company's assets, liabilities, and owners' equity at a particular time.

Question 19

Net sales and net profit are the same thing.

Question 20

The term "net profit" refers to the amount the company has earned from its operations during a particular period.

Question 21

Return on investment and return on assets are both measures of how effectively a firm uses its resources.

Question 22

A weakness of the trend-extension method of sales forecasting is that it assumes past conditions will continue unchanged in the future.

Question 23

A sales forecast is an estimate of how much an industry or firm hopes to sell to a market segment.

Question 24

Generally, a marketing manager doesn't have to make forecasts for a national economy or the broad industry.

Question 25

A 33 1/3 percent markup on selling price equals a 50 percent markup on cost.

Question 26

Operating ratios (calculated from an operating statement) show various items from the statement as a percentage of net sales.

Question 27

Markdowns are generally considered to be due to business errors, while returns result from customer errors.

Question 28

A retailer's "markdown ratio" is calculated directly from its operating statement.

Question 29

Market potential refers to how much a whole market segment will buy while sales forecast refers to how much one firm hopes to sell to that market segment.

Question 30

The basic formula used in the factor method of sales forecasting is: some variable, such as past sales, times some related factor equals the sales forecast.

Question 31

When comparing the figures for market potential and sales forecast for the same market segment, the sales forecast figure should always be larger.

Question 32

Market potential refers to what a whole market segment might buy.

Question 33

When forecasting sales, a common approach is to develop a national income forecast, then an industry sales forecast, and finally specific company and product forecasts.

Question 34

Once a specific forecast is developed, we can ascertain why sales vary.

Question 35

A sales forecast is an estimate of what a whole market segment will buy.

Question 36

Return on investment is a measure of the dollar resources the firm has invested in a project or business.

Question 37

The factor method tries to forecast sales by finding a relation between the company's sales and some other factor (or factors).

Question 38

The ROI ratio might be improved by earning at least the same net profit while reducing investment.

Question 39

Markups (expressed as a percentage of selling price) cannot be converted to markup percents expressed as a percentage of cost without knowing the actual selling price or the actual cost.

Question 40

When calculating operating ratios from an operating statement, the denominator is usually net profit.

Question 41

The likely reaction of customers to possible changes in a marketing mix can sometimes be estimated using market tests and surveys of final buyers.

Question 42

The factor method is widely used by producers of consumer products, but it isn't relevant for producers of business products.

Question 43

Ms. Treadway's athletic shoe store had gross sales of $62,500 in January. Compute her NET SALES for the month from the following data.

A) $59,500
B) $5,500
C) $48,000
D) $60,000
E) $3,500

Question 44

Sales forecasts based on Sales and Marketing Management's "Buying Power Index" assume that sales are related to a market's population, income, and retail sales.

Question 45

The cost of sales for a company is $400,000 and its net sales are $800,000. What would its stockturn rate be if its average inventory at cost is $100,000?

A) 3
B) 2
C) 1
D) 8
E) 4

Question 46

A farm supply store starting with a $40,000 inventory at cost expects to sell $400,000 (cost of sales) of merchandise in the coming year. It plans to turn over its stock 10 times during the year. How much merchandise must the shop purchase during the year?

A) $200,000
B) $400,000
C) $420,000
D) $440,000
E) None of the above.

Question 47

The Sales and Marketing Management "Buying Power Index" is a measure of the potential in different geographic areas.

Question 48

Not all past economic or sales behavior can be neatly extended with a straight line or some manipulation.

Question 49

The main advantage of the jury approach is that it can be done quickly and easily.

Question 50

The basic components of an operating statement are:

A) net sales, cost of sales, profit.
B) gross sales, gross margin, expenses, net profit.
C) sales, costs, and profit or loss.
D) sales, costs, and expenses.
E) gross sales, gross margin, net profit.

Question 51

The "jury of executive opinion" method of sales forecasting combines the opinions of experienced executives in a firm.

Question 52

An auto manufacturer that bases its sales forecast on increases in population and income is using the "factor method."

Question 53

A major limitation of the factor method is that it does not allow several factors to be used together.

Question 54

Sales and Marketing Management's "Buying Power Index" is not very useful for sales forecasting because it only considers the population in markets.

Question 55

Given the following information, calculate the firm's NET PROFIT (or LOSS).

A) $85,000
B) $100,000
C) $50,000
D) $160,000
E) a loss of $200,000

Question 56

When a firm subtracts its cost of sales from its net sales, the amount left over is called:

A) gross margin.
B) return on assets.
C) net profit.
D) expenses.
E) gross sales.

Question 57

Given the following information, calculate the firm's COST OF SALES.

A) $180,000
B) $285,000
C) $190,000
D) $120,000
E) Cannot be determined without knowing the firm's net sales.

Question 58

The accuracy of any sales forecast depends on whether the firm selects and implements a marketing mix that turns these opportunities into sales and profits.

Question 59

Regarding operating statements:

A) gross sales are the actual sales dollars the company will receive.
B) net sales minus expenses equals the cost of sales.
C) "gross sales" minus expenses equals the cost of sales.
D) gross margin equals expenses plus net profit.
E) gross margin is the money left after all expenses are subtracted from net sales.

Question 60

The main disadvantage of the "jury of executive opinion" method of sales forecasting is that it is very slow.

Question 61

A drugstore buys toothpaste from its wholesaler for $30.00 a case. This retailer uses a 25 percent markup. The retail selling price for a case of the toothpaste will be:

A) $37.50
B) $120.00
C) $40.00
D) $22.50
E) There is not enough information to tell.

Question 62

True Blue, Inc.--which had a net profit of $200,000 last year--had a gross margin of 40 percent and expenses of 30 percent. What were its net sales in dollars?

A) $700,000
B) $2,000,000
C) $1,000,000
D) $800,000
E) Cannot be determined with data given.

Question 63

"Return on investment" means:

A) sales divided by investment.
B) investment divided by net sales.
C) net profit before taxes divided by the assets used to make the profit.
D) net profit after taxes divided by the investment used to make the profit.
E) None of the above.

Question 64

If a wholesaler takes a 33.3 percent markup on selling price, what is the approximate markup on cost?

A) 80%
B) 50%
C) 20%
D) 100%
E) 33%

Question 65

In making a purchase from a wholesaler, a retailer is told that a certain item will earn a 100 percent markup on cost. What markup on selling price will this be?

A) 75%
B) 100%
C) 66 2/3%
D) 200%
E) 50%

Question 66

A hardware retailer who seeks a markup of 50 percent recently bought a new item for $15.00. To determine its selling price, he/she should add ______________ to this cost.

A) $40.00
B) $80.00
C) $10.00
D) $20.00
E) $15.00

Question 67

Markdowns:

A) do not affect the profits of a business.
B) are not shown on an operating statement.
C) are similar to allowances--and are subtracted from gross sales on an operating statement.
D) are generally caused by "consumer errors."
E) All of the above.

Question 68

Aiwa Industries sells directly to auto parts retailers and is trying to set a price on a radar detector so that its retailers can sell it for $100. If the retailers need a 30 percent markup--and Aiwa can produce the item for $35--what markup could Aiwa take for itself?

A) 35%
B) 100%
C) 30%
D) 70%
E) 50%

Question 69

Which of the following would NOT be shown on a firm's "balance sheet"?

A) Liabilities
B) Net worth
C) Assets
D) Net sales
E) All of the above would be on a firm's balance sheet.

Question 70

Regarding "operating statements," which of the following statements is FALSE?

A) Stockturn rate can be calculated directly from a detailed operating statement.
B) Gross margin must be larger than expenses for a business to make a profit.
C) By comparing the results from one statement to another, management can see trends.
D) The markdown ratio cannot be calculated directly from a detailed operating statement.
E) The purpose of the operating statement is to determine the firm's ROI and ROA.

Question 71

Based on the information in Table B-1, and given that the stockturn rate is 10, the cost of sales is:

A) $400,000.
B) $70,000.
C) $60,000.
D) $65,000.

Question 72

What net sales are required to obtain a stockturn rate of 5--given an average inventory at cost of $100,000 and a gross margin of 50 percent?

A) $100,000
B) $1,500,000
C) $600,000
D) $1,000,000
E) $400,000

Question 73

If a wholesaler's markup on selling price is 50 percent, what is the markup on cost?

A) 33 1/3%
B) 66 2/3%
C) 50%
D) 100%
E) Cannot be determined without knowing the dollar amount of the markup.

Question 74

If net sales on the operating statement for Brandywine Company were $200,000--and gross sales were $240,000--what would the cost of sales be if the gross margin was 20 percent?

A) $140,000
B) $168,000
C) $160,000
D) $120,000
E) Cannot be determined without knowing Brandywine's expenses and net profit.

Question 75

Given the following information, calculate the firm's "return on investment" (ROI). Net sales: $20,000,000
Net profit (after taxes): $500,000
Investment: $10,000,000

A) 20%
B) 50%
C) 10%
D) 2.5%
E) 5%

Question 76

Which of the following statements about operating ratios (which can be calculated from operating statements) is TRUE?

A) By comparing operating ratios from one period to another, a firm can identify areas that may need special attention.
B) These ratios are often used for control purposes.
C) These ratios are calculated by dividing operating statement items by net sales.
D) By comparing its operating ratios with competitors' ratios, a firm may be able to obtain a better idea of how it is doing.
E) All of the above are true.

Question 77

Other things equal, a firm can increase return on investment (ROI) by:

A) decreasing investment.
B) reducing expenses.
C) increasing profit margins.
D) increasing net sales.
E) Any of the above.

Question 78

If a wholesaler takes a 50 percent markup on its cost, this is equal to a ______________ markup on selling price.

A) 33 1/3%
B) 200%
C) 100%
D) 20%
E) 50%

Question 79

Given the following information, calculate the firm's stockturn rate.

A) 7
B) 10
C) 3
D) 6
E) Cannot be determined from data given.

Question 80

Based on the information in Table B-1, net sales are:

A) $560,000.
B) $530,000.
C) $650,000.
D) $610,000.
E) $600,000.