Retailing Management 10th Edition By Michael Levy -Test Bank Instant Download - Complete Test Bank With Answers Sample Questions Are Posted Below Retailing Management, 10e (Levy) Chapter 6 Financial Strategy 1) Return on assets (ROA) is the profit generated by the assets possessed by the firm. Answer: TRUE Explanation: …
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Retailing Management 10th Edition By Michael Levy -Test Bank
Instant Download – Complete Test Bank With Answers
Sample Questions Are Posted Below
Retailing Management, 10e (Levy)
Chapter 6 Financial Strategy
1) Return on assets (ROA) is the profit generated by the assets possessed by the firm.
Answer: TRUE
Explanation: Return on assets (ROA) is the profit generated by the assets possessed by the firm.
Difficulty: 1 Easy
Topic: Strategic Objectives for the Retail Firm
Learning Objective: 06-01 Review the strategic objectives of a retail firm.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
2) Self-gratification for the retailer is classified as a societal objective.
Answer: FALSE
Explanation: Self-gratification for the retailer is a personal objective.
Difficulty: 2 Medium
Topic: Strategic Objectives for the Retail Firm
Learning Objective: 06-01 Review the strategic objectives of a retail firm.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
3) Gross margin is the total revenues received by a retailer that are related to selling merchandise during a given time period minus returns, discounts, and credits for damaged merchandise.
Answer: FALSE
Explanation: Net sales are the total revenues received by a retailer that are related to selling merchandise during a given time period minus returns, discounts, and credits for damaged merchandise.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
4) Cost of goods sold (COGS) includes what the retailer pays to suppliers for the merchandise the retailer sells.
Answer: TRUE
Explanation: What the retailer is invoiced for and pays to the supplier or vendor is part of the cost of goods sold (COGS). Also included in COGS is any transportation cost that the retailer initially pays to get the merchandise to their distribution center from the supplier.
Difficulty: 1 Easy
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
5) A formula for calculating inventory turnover is: Cost of goods sold (COGS)/Average inventory at cost.
Answer: TRUE
Explanation: The formula for calculating inventory turnover is: Cost of goods sold (GOGS)/Average inventory at cost or Net sales (at Retail)/Average inventory (at retail).
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
6) The formula for calculating asset turnover is: Asset turnover = Cost of goods/Total assets.
Answer: FALSE
Explanation: The formula for calculating asset turnover is: Asset turnover = Net sales/Total assets.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-03 Illustrate the use of the strategic profit model for analyzing growth opportunities.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
7) Charging for space in stores is referred to as a slotting allowance.
Answer: TRUE
Explanation: Grocery stores often charge vendors for space in their stores, known as a slotting fee or slotting allowance.
Difficulty: 1 Easy
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
8) Same-store sales is the same as comparable-store sales growth.
Answer: TRUE
Explanation: Both same-store sales and comparable store sales growth compare sales growth in stores that have been open for at least one year.
Difficulty: 2 Medium
Topic: Measures for Assessing Retailers Performance
Learning Objective: 06-04 Review the measures retailers use to assess their performance.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
9) Top-down planning means that goals get set at the top of the organization and are passed down to the lower operating levels.
Answer: TRUE
Explanation: Top-down planning means that goals get set at the top of the organization and are passed down to the lower operating levels.
Difficulty: 1 Easy
Topic: Measures for Assessing Retailers Performance
Learning Objective: 06-04 Review the measures retailers use to assess their performance.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
10) Output measures assess the results of a retailer’s investment decisions.
Answer: TRUE
Explanation: Output measures assess the results of a retailer’s investment decisions.
Difficulty: 1 Easy
Topic: Measures for Assessing Retailers Performance
Learning Objective: 06-04 Review the measures retailers use to assess their performance.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
11) Jake, who runs a health food store, finds it is rewarding to interact with customers who like to eat organic and health food. Hence, he is recognized in the local community. Which objective of retailing does Jake emphasize by this practice?
Answer: B
Explanation: Many retailers, particularly owners of small, independent businesses, have important personal objectives, including self-gratification, status, and respect.
Difficulty: 2 Medium
Topic: Strategic Objectives for the Retail Firm
Learning Objective: 06-01 Review the strategic objectives of a retail firm.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
12) Which of the following statements is not true about the strategic profit model?
Answer: C
Explanation: In the strategic profit model, ROA is decomposed into operating profit margin percentage and asset turnover.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
13) Which of the following is an integral part of the strategic profit model?
Answer: B
Explanation: Asset turnover is the only component of these choices in the strategic profit model.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
14) What does asset turnover measure?
Answer: D
Explanation: Asset turnover is the retailer’s net sales divided by its assets.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
15) Operating profit margin is
Answer: A
Explanation: Operating profit margin is the gross margin minus the operating expenses.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
16) If you had $50,000 and you wanted to invest in stocks, you have two options. Which of the following ratios would best help you to decide on your investment?
Answer: C
Explanation: Return on assets is an important performance measure for a firm and its stockholders because it measures the profits that a firm makes relative to the assets it possesses.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
17) By knowing the return on assets for his bakery, Chuck will know
Answer: A
Explanation: Return on assets is an important performance measure for a firm and its stockholders because it measures the profits that a firm makes relative to the assets it possesses.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
18) Which of the following statements does not describe asset turnover?
Answer: D
Explanation: Asset turnover assesses the productivity of a retailer’s investment in its assets and indicates how many dollars are generated for each dollar of assets.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
19) The strategic profit model decomposes ROA into two components
Answer: A
Explanation: The strategic profit model decomposes ROA into two components: (1) operating profit margin percentage and (2) asset turnover.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
20) Calculate the return on assets for a gun shop that has total assets of $410,000, current assets of $74,000, total liabilities of $280,000, accounts receivable of $12,000, net sales of $64,000, and operating profit margin of $30,000.
Answer: C
Explanation: Return on assets equals operating profit margin ($30,000) divided by total assets ($410,000) converted to a percentage.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
21) An appliance store has total assets of $2,800,000, accounts receivable of $900,000, accounts payable of $700,000, inventory valued at $1,500,000, and total liabilities of $2,500,000. In 2016, its net sales were $2,100,000, and its operating profit margin equaled $42,000. Calculate the store’s return on assets.
Answer: D
Explanation: Return on assets equals operating profit margin ($42,000) divided by total assets ($2,800,000) converted to a percentage.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
22) Melanie’s Bead Shoppe has total assets of $45,000, accounts receivable of $2,000, accounts payable of $3,100, and inventory valued at $20,000. Last year, her net sales were $29,000, and her operating profit margin equaled $14,000. What is her return on assets?
Answer: A
Explanation: Return on assets equals operating profit margin of $14,000 divided by total assets of $45,000, which equals 31.1%.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
23) The information used to analyze a firm’s profit path comes from the
Answer: C
Explanation: The information used to examine the profit margin management path comes from the retailer’s income statement, also known as the statement of operations.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
24) Tony wanted to know what the net sales and the net profit after tax were last year for his nephew’s business, The Big Guy Shop. Tony should look at the store’s
Answer: E
Explanation: The income statement summarizes the financial performance of a firm over a period of time.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
25) ________ are the total revenues received by a retailer that are related to selling merchandise during a given time period.
Answer: E
Explanation: Net sales are the total revenues received by a retailer that are related to selling merchandise during a given time period minus returns, discounts, and credits for damaged merchandise.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
26) Which of the following is not a component in the calculation of net sales?
Answer: D
Explanation: Net sales are revenues received in relation to selling products; interest would therefore not be a component, whereas all other selections impact sales.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
27) Country Homes is a store for people who collect country arts and crafts and use them to decorate their homes. Last year, its net sales totaled $120,500. The cost value of the items it sold was $72,300. Taxes for the year were $7,680. The only expenses that the operation had were (1) rent for $3000, (2) salaries to the owner and one part-time assistant for $27,000, (3) utilities at $1,200, and (4) advertising of $500. Calculate the gross margin percentage for Country Homes.
Answer: A
Explanation: Gross Margin = Net Sales – Cost of goods sold = $120,500 – $72,300 = $48,200.
Gross margin/Net sales = Gross margin percent. 48,200/120,500 = 0.4 * 100 = 40%
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
28) The amount paid for the merchandise by the retailer is the
Answer: A
Explanation: Cost of goods sold (COGS) is the amount a retailer pays to vendors for the merchandise the retailer sells.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
29) What measures the profitability of products that are sold?
Answer: C
Explanation: Gross margin is a measurement of the profitability of the goods sold, or profit on the merchandise. Gross margin, also called gross profit, is the net sales minus the cost of the goods sold. It is an important measure in retailing because it indicates how much profit the retailer is making on merchandise sold, without considering the expenses associated with operating the store and corporate overhead expenses.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
30) ________ gives the retailer a measure of how much profit it is making on merchandise sales without considering the expense associated with operating the store.
Answer: A
Explanation: Gross margin, also called gross profit, is the net sales minus the cost of the goods sold. It is an important measure in retailing because it indicates how much profit the retailer is making on merchandise sold, without considering the expenses associated with operating the store and corporate overhead expenses.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
31) The formula for calculating gross margin is
Answer: A
Explanation: Gross margin, also called gross profit, is the net sales minus the cost of the goods sold.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
32) Which of the following statements does not describe gross margin?
Answer: E
Explanation: Gross margin, also called gross profit, is a performance measurement of the profit on the goods sold.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
33) What ratio should a retailer use to best compare the performance of cashmere sweaters versus cotton sweaters?
Answer: B
Explanation: Gross margin percentage is gross margin divided by net sales. Retailers use this ratio to compare (1) the performance of various types of merchandise and (2) their own performance with that of other retailers with higher or lower levels of sales.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
34) In response to a growing trend of workers eating at their work stations, OfficeEase, an Internet retailer, offers a line of products that can be used to protect office equipment and furniture, including a plastic sheath for a computer keyboard and a spill-proof cup. Last year, its net sales were $1,450,000 with cost of goods sold for $353,000. The company’s expenses last year totaled $960,000. Calculate the company’s net profit percentage.
Answer: A
Explanation: Gross Margin = Net Sales − Cost of Goods Sold = $1,450,000 − $353,000 = $1,097,000.
Net Profit = Gross Margin − Expenses = $1,097,000 − $960,000 = $137,000.
Net Profit Percentage = (Net Profit/Net Sales) * 100 = ($137,000/$1,450,000) * 100 = 9.4 percent.
Difficulty: 3 Hard
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
35) How is gross margin percent calculated?
Answer: A
Explanation: Gross margin percent is calculated by diving gross margin by net sales.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
36) The hosting of a website for the purpose of online retailing would be classified as a(n)
Answer: B
Explanation: Operating expenses are costs other than the cost of the merchandise. The hosting of a website would be similar to paying rent for space.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
37) How is operating profit margin percent calculated?
Answer: A
Explanation: Operating profit margin is calculated by dividing operating profit dollars by net sales dollars.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
38) Second Chance is a paperback book exchange. For each book trade, the buyer pays a $1 trade fee. Books that are sold and not traded cost half of their original purchase price. The store has total assets of $126,000 and current assets of $40,200. Its net sales equaled $35,000, and its net profit after taxes was $9,000. Calculate the store’s net profit percentage.
Answer: D
Explanation: Net Profit Percentage = (Net profit after taxes/Net sales) * 100 = ($9,000/$35,000) * 100 = 25.7%
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
39) Which of the following is expressed as a percentage of net sales?
Answer: B
Explanation: Net profit/net sales = net profit margin
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
40) Candle in the Wind is a store for people who enjoy and collect candles to decorate their homes. Last year, its net sales totaled $125,000 with $13,700 in taxes. The cost value of the candles it sold was $42,300. The expenses that the operation has are salaries to the owner and one part-time assistant for $52,000, administrative expenses of $400, and utilities at $900. Calculate the net profit after tax for Candle in the Wind.
Answer: D
Explanation: Expenses = $52,000 + $400 + $900 = $53,300
Gross Margin = Net Sales − Cost of goods sold = $125,000 − $42,300 = $82,700
Net Profit before tax = Gross Margin − Expenses = $82,700 − $53,300 = $29,400
Net Profit after tax = Net Profit before Tax − Taxes = $29,400 − $13,700 = $15,700
Difficulty: 3 Hard
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
41) Alpha is popular loungewear that prides itself on its versatility. Last year, its net sales were $1,750,000 with cost of goods of $390,000. The company’s operating expenses totaled $960,000. Calculate the company’s net operating profit margin percentage.
Answer: C
Explanation: Gross Margin = Net Sales − Cost of goods sold = $1,750,000 − $390,000 = $1,360,000.
Gross Margin – Operating Expenses = $1,360,000 − $960,000 = $400,000 Net Operating Profit
Net Operating Profit/Net Sales = Net Operating Profit Margin
$400,000 / $1,750,000 = 22.9% (.2285 rounds to 22.9%)
Difficulty: 3 Hard
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
42) Billie Jean’s Bridals has total assets of $350,000, current assets of $74,000, total liabilities of $280,000, accounts receivable of $12,000, net sales of $64,000, and net profit after taxes of $23,000. Calculate the retailer’s net profit percentage.
Answer: E
Explanation: Net profit margin % = Net profit after tax/Net sales.
Net profit margin of $23,000 divided by $64,000 = 35.9%
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
43) Why would a discount store have a lower gross margin percent than a jewelry store?
Answer: D
Explanation: A retailer’s strategy differs based upon its target customer and merchandise strategy. A retailer that offers less customer service and ambiance needs less gross margin to cover operating expenses.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
44) Why is it important for department stores to achieve a high gross margin?
Answer: A
Explanation: It is important for department stores to achieve a relatively high gross margin because their operating expenses tend to be higher than those of other retail formats like discount stores. Operating expenses are costs, other than the cost of merchandise, incurred in the normal course of doing business, such as salaries for sales associates and managers, advertising, utilities, office supplies, and rent.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
45) When Chris charges a gallon of chlorine for his pool at Pinch-A-Penny to his store account, he creates a(n) ________ for the retailer.
Answer: E
Explanation: Accounts receivables are what is owed to the retailer by customers who have purchased merchandise on credit.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
46) The formula for calculating operating expenses percentage is
Answer: C
Explanation: The operating expenses percentage is operating expenses divided by net sales.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
47) The information used to analyze a retailer’s asset management path primarily comes from the
Answer: E
Explanation: The balance sheet summarizes a retailer’s financial position at a given point in time, typically the end of its fiscal year.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
48) Which of the following would be listed as an asset on the balance sheet for a children’s clothing shop?
Answer: C
Explanation: Current assets can be normally converted to cash within one year. Examples would be primarily cash, accounts receivable, and merchandise inventory.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
49) Which of the following would not be listed as an asset on the balance sheet of a hardware store?
Answer: E
Explanation: All are assets except for accounts payable. Accounts receivable is an asset, but not what needs to be paid out.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
50) If Mohammed wanted to examine the assets and liabilities of the Silver Exchange Coin Shop for the end of the year, he should look at its
Answer: A
Explanation: The balance sheet summarizes a retailer’s financial position at a given point in time, typically the end of its fiscal year.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
51) The Bookstore Café is a small restaurant located in a downtown business district. It is opened for breakfast and lunch and serves simple yet nutritious meals and also sells books from the New York Times bestseller list. How would you categorize the book inventory, cooking equipment, tables, chairs, and the register?
Answer: B
Explanation: All are economic resources owned and/or controlled by the storeowner, so these are assets. The inventory is a current asset. The others are fixed assets.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
52) Of the following, which can be converted into cash within one year?
Answer: A
Explanation: Current assets can normally be converted to cash within one year. For retailers, current assets are primarily cash, merchandise inventory, and other assets such as accounts receivable.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
53) Which of the following can be considered as a current asset?
Answer: B
Explanation: Current assets can normally be converted to cash within one year. For retailers, current assets are primarily cash, merchandise inventory, and other assets such as accounts receivable.
Difficulty: 1 Easy
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
54) Which of the following is classified as an asset?
Answer: B
Explanation: Assets are economic resources (e.g., inventory, buildings, computers, store fixtures) owned or controlled by a firm.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
55) When Erica calculates the current assets for her picture framing business, she should not include which of the following?
Answer: A
Explanation: Current assets can normally be converted to cash within one year. For retailers, current assets are primarily cash, merchandise inventory, and other assets such as accounts receivable.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
56) Harriet’s Wimsey is a bookstore for people who love mysteries. How would a complete set of P. D. James mystery novels, a first edition copy of The Maltese Falcon, the money in the cash register, and an IOU from a loyal customer who forgot her wallet one day when she came to purchase the newest Dorothy Cannell book be listed on the store’s balance sheet?
Answer: E
Explanation: Current assets can normally be converted to cash within one year. For retailers, current assets are primarily cash, merchandise inventory, and other assets such as accounts receivable.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
57) As Dean calculates his current assets for his used video game store, he is sure to include which of the following?
Answer: A
Explanation: Current assets can normally be converted to cash within one year. For retailers, current assets are primarily cash, merchandise inventory, and other assets such as accounts receivable.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
58) When Nick is figuring the current assets for his nail salon, he should be certain to include ________ in his calculations.
Answer: A
Explanation: Current assets can normally be converted to cash within one year. For retailers, current assets are primarily cash, merchandise inventory, and other assets such as accounts receivable.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
59) What is inventory turnover used to evaluate?
Answer: A
Explanation: Inventory turnover shows how many times, on average, inventory cycles through the store during a specific period of time (usually a year).
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
60) A store that sells books, magazines, and newspapers has an average inventory of $15,000 at cost. Its cost of goods for the previous year was $62,000, and its net profit was $9,000. Calculate the retailer’s inventory turnover.
Answer: D
Explanation: Inventory turnover = Cost of Goods/Average Inventory at cost = $62,000/$15,000 = 4.13
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
61) Inventory turnover
Answer: C
Explanation: Inventory turnover is COGS during a time period, typically a year, divided by the average level of inventory (expressed at cost) during the time period.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
62) Which of the following would be a fixed asset?
Answer: C
Explanation: Fixed assets require more than a year to convert to cash. Examples would be owned buildings, distribution centers, display fixtures, and equipment.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
63) Which of the following is an example of a fixed asset for a music store?
Answer: E
Explanation: Fixed assets require more than a year to convert to cash. Examples would be owned buildings, distribution centers, display fixtures, and equipment.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
64) Which of the following is not an example of a fixed asset for a lawn care service?
Answer: E
Explanation: Buildings, stocks, and equipment, which cannot be converted into cash quickly, are fixed assets.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
65) Asset turnover
Answer: E
Explanation: Asset turnover is net sales divided by total assets. The ratio indicates how many sales dollars are generated for each dollar of assets.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
66) ________ equals a company’s net sales divided by its total assets.
Answer: A
Explanation: Asset turnover is net sales divided by total assets. The ratio indicates how many dollars are generated for each dollar of assets.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
67) The strategic profit model is useful to retailers because it
Answer: E
Explanation: Both net profit margin and asset turnover are important to evaluate.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-03 Illustrate the use of the strategic profit model for analyzing growth opportunities.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
68) Grocery stores charging their vendors for space in their stores is referred to as a
Answer: E
Explanation: Grocery stores will often charge their vendors a stocking fee or slotting allowance to have space in their stores.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
69) ________ is a method entrepreneurs use to raise money from various individuals to support a particular project.
Answer: B
Explanation: Crowdfunding, or crowdsourcing, raises money to support a particular project by convincing a large group of people to donate money, often in relatively small amounts.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
70) If a retailer’s gross margin percent is on plan, however the retailer is tracking below plan for net operating profit margin plan, which of these options would help improve their situation?
Answer: D
Explanation: Since gross margin – selling, general and administrative expenses = net operating profit then decreasing the SG&A would improve the net operating profit margin plan.
Difficulty: 3 Hard
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
71) If a retailer’s gross margin is tracking below plan, which of these options would increase their gross margin?
Answer: A
Explanation: Since net sales – cost of goods sold = gross margin, decreasing cost of goods of sold would increase gross margin.
Difficulty: 3 Hard
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.; 06-04 Review the measures retailers use to assess their performance.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
72) Michael’s sets goals at the top of the organization. Then, it breaks down these objectives for merchandise categories and regions. When these objectives reach the buyers, each objective is personalized. What does this process demonstrate?
Answer: E
Explanation: Top-down planning means that the goals are set at the top of the organization and are passed down to the lower operating levels.
Difficulty: 2 Medium
Topic: Measures for Assessing Retailers Performance
Learning Objective: 06-04 Review the measures retailers use to assess their performance.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
73) The executives for New Haus set the retail objective for the company. These objectives are broken down in order to create the objectives for each merchandise category, as well as for each region of the country. Further breakdowns of the objectives occur when the executives’ objectives reach the buyers who must personalize those objectives. This is an example of ________ planning.
Answer: E
Explanation: Top-down planning means that the goals are set at the top of the organization and are passed down to the lower operating levels.
Difficulty: 2 Medium
Topic: Measures for Assessing Retailers Performance
Learning Objective: 06-04 Review the measures retailers use to assess their performance.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
74) If the executives for OfficeMax developed the chain’s objectives by asking buyers and store managers to forecast sales and merchandise for the next year, and then transmitted those estimates up the organization to the top level, it would be an example of ________ planning.
Answer: B
Explanation: Bottom-up planning involves lower levels in the company developing performance objectives that are aggregated up to develop overall company objectives. Buyers and store managers estimate what they can achieve, and their estimates are transmitted up the organization to the corporate executives.
Difficulty: 2 Medium
Topic: Measures for Assessing Retailers Performance
Learning Objective: 06-04 Review the measures retailers use to assess their performance.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
75) Which of the following would be the best example of an input measure?
Answer: A
Explanation: Input measures are the resources or money allocated by a retailer to achieve outputs, or results. For example, the amount and selection of merchandise inventory, the number of stores, the size of the stores, the employees, advertising, markdowns, store hours, and promotions all require managerial decisions on inputs. Inventory is an input measure, while all other choices are output measures.
Difficulty: 2 Medium
Topic: Measures for Assessing Retailers Performance
Learning Objective: 06-04 Review the measures retailers use to assess their performance.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
76) Which of the following assesses the results of a retailer’s investments?
Answer: D
Explanation: Output measures assess the results of a retailer’s investment decisions.
Difficulty: 2 Medium
Topic: Measures for Assessing Retailers Performance
Learning Objective: 06-04 Review the measures retailers use to assess their performance.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
77) Which of the following would be the best example of an output measure?
Answer: E
Explanation: Output measures assess the results of a retailer’s investment decisions. For example, sales revenue, gross margin, and net profit margin are all output measures and ways to evaluate a retailer’s input or resource allocation decisions.
Difficulty: 2 Medium
Topic: Measures for Assessing Retailers Performance
Learning Objective: 06-04 Review the measures retailers use to assess their performance.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
78) Which of the following is used to assess overall performance at a corporate level?
Answer: D
Explanation: A commonly used measure of overall performance is comparable-store sales growth (also called same-store sales growth), which compares sales growth in stores that have been open for at least one year. Growth in sales can result from increasing the sales generated per store or by increasing the number of stores. Growth in same-store sales assesses the first component in sales growth and thus indicates how well the retailer is doing with its core business concept.
Difficulty: 2 Medium
Topic: Measures for Assessing Retailers Performance
Learning Objective: 06-04 Review the measures retailers use to assess their performance.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
79) Which of the following would be the best example of an output measure?
Answer: E
Explanation: Output measures assess the results of a retailer’s investment decisions. For example, sales revenue, gross margin, and net profit margin are all output measures and ways to evaluate a retailer’s input or resource allocation decisions.
Difficulty: 2 Medium
Topic: Measures for Assessing Retailers Performance
Learning Objective: 06-04 Review the measures retailers use to assess their performance.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
80) Which of the following is an example of a productivity measure?
Answer: B
Explanation: A productivity measure determines how effectively retailers use their resources; it is the ratio of an output to an input. Since inventory turnover is cost of goods/average inventory, it is a productivity measure.
Difficulty: 2 Medium
Topic: Measures for Assessing Retailers Performance
Learning Objective: 06-04 Review the measures retailers use to assess their performance.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
81) Identify and describe the three types of objectives retailers might have in the strategic planning process.
Answer: Financial objectives such as return on assets; societal objectives such as how the retailer may benefit society and give back; and personal objectives such as self-gratification, status, and respect are the three types of objectives retailers might have in the strategic planning process.
Difficulty: 2 Medium
Topic: Strategic Objectives for the Retail Firm
Learning Objective: 06-01 Review the strategic objectives of a retail firm.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
82)
| Retailer A | Retailer B | |
| Net Sales | $200,000 | $340,000 |
| Total Sales | $355,000 | $580,000 |
Using the information above, calculate each retailer’s asset turnover and compare the results. Discuss what the results indicate about each retailer.
Net Sales/Total Assets = Asset Turnover
Answer: Retailer A has an asset turnover of 56.3% and Retailer B has better asset turnover of 58.6%. The asset turnover indicates the productivity of the retailer’s investment in its assets and indicates how many dollars are generated for each dollar of assets. Retailer A generates 56.3 cents of sales for each dollar invested in the retailer’s assets. Retailer B generates 58.6 cents for each dollar invested in the retailer’s assets.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
83) Identify and describe the two paths of activities that determine return on assets (ROA).
Answer: One path is profit margin management. The information used to examine the profit margin management path comes from the retailer’s income statement, also called the statement of operations. The income statement summarizes a firm’s financial performance over a period of time, typically a quarter (three months) or year. The four components in the profit margin management path are net sales, cost of goods sold (COGS), gross margin, and operating profit margin. The other path is asset management. The information used to analyze a retailer’s asset management path primarily comes from the retailer’s balance sheet. While the income statement summarizes financial performance over a period of time (usually a year or quarter), the balance sheet summarizes a retailer’s financial position at a given point in time, typically the end of its fiscal year. Assets are economic resources (e.g., inventory, buildings, computers, store fixtures) owned or controlled by a firm. There are two types of assets, current and fixed.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
84) Identify and describe the measures retailers use to assess their financial performance.
Answer: Gross margin: Net sales − COGS; GM% = GM$/Net sales
Operating profit margin: Gross Margin − Operating Expenses-Extraordinary (recurring) operating expenses; Operating profit margin% = Operating profit margin$/Net sales
Net profit margin: Operating profit margin − Extraordinary nonrecurring expenses-taxes-interest-depreciation; Net profit% = NP$/Net sales
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic profit model.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
85)
| Retailer A | Retailer B | |
| Net Sales | $200,00 | $340,000 |
| COGS | $83,000 | $180,000 |
| Operating Expenses | $50,000 | $93,000 |
Using the information above, calculate each retailer’s gross margin percent and net operating profit percent. Compare the two and discuss which retailer is performing better. What could the poorer performing retailer do to increase their financial performance?
Answer:
| Retailer A | Retailer B | |
| Net Sales | $200,000 | $340,000 |
| COGS | $83,000 | $180,000 |
| Gross Margin $ | $117,000 | $160,000 |
| Gross Margin % | 58.5% | 47.1% |
| Operating Expenses | $50,000 | $93,000 |
| Operating Exp% | 25% | 27.4% |
| NOP $ | $67,000 | $67,000 |
| NOP % | 33.5% | 19.7% |
Although both retailers earned a net profit of $67,000, Retailer A performed significantly better. Retailer A achieved a higher gross margin percent with 58.5% whereas Retailer B achieved only 47.1%. Retailer A’s net operating percent was significantly better earning 33.5% whereas Retailer B was only at 19.7%.
Retailer B should strive to decrease their cost of goods sold by negotiating with vendors for lower prices and try to sell more merchandise at higher prices to increase their gross margin. Retailer B could also strive to decrease their operating expenses.
Difficulty: 2 Medium
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-03 Illustrate the use of the strategic profit model for analyzing growth opportunities.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
86) What is same-store sales growth and how retailers use it?
Answer: A commonly used measure of overall performance is comparable-store sales growth (also called same-store sales growth), which compares sales growth in stores that have been open for at least one year. Growth in sales can result from increasing the sales generated per store or by increasing the number of stores. Growth in same-store sales assesses the first component in sales growth, and thus indicates how well the retailer is doing with its core business concept.
Difficulty: 2 Medium
Topic: Measures for Assessing Retailers Performance
Learning Objective: 06-04 Review the measures retailers use to assess their performance.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
87) What are the critical assets controlled by a store manager?
Answer: The critical assets controlled by a store manager are use of store space and the management of employees. Thus, measures of store operations productivity include sales per square foot of selling space, sales per employee (or sales per employee per working hour, to take into account that some employees work part-time), theft by employees and customers (referred to as inventory shrinkage), store maintenance, and energy costs (lighting, heating, and air conditioning).
Difficulty: 2 Medium
Topic: Measures for Assessing Retailers Performance
Learning Objective: 06-04 Review the measures retailers use to assess their performance.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
