Chapter 9 Test
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Chapter 9 Test

Course: MKTG 361, Spring 2012

School: Ole Miss

Word Count: 9067

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CHAPTER 9MERCHANDISE BUYING AND HANDLING MULTIPLE CHOICE 1. The analysis, planning, acquisition, handling, and control of the merchandise investments of a retail operation is termed: a. inventory planning. b. sales review/planning. c. product ordering. d. merchandise management. e. merchandise acquisition. ANS: D PTS: 1 REF: p. 312 OBJ: LO 9-1 2. Gross margin return on inventory (GMROI) equals: a. gross margin...

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9MERCHANDISE CHAPTER BUYING AND HANDLING MULTIPLE CHOICE 1. The analysis, planning, acquisition, handling, and control of the merchandise investments of a retail operation is termed: a. inventory planning. b. sales review/planning. c. product ordering. d. merchandise management. e. merchandise acquisition. Register to View Answer PTS: 1 REF: p. 312 OBJ: LO 9-1 2. Gross margin return on inventory (GMROI) equals: a. gross margin percentage / dollars invested in inventory at retail. b. (gross margin / net sales) (net sales / average inventory at cost). c. gross margin percentage / inventory turnover rate. d. net profit margin / markdown percentage. e. (gross margin / net sales) (net sales / average inventory at retail). Register to View Answer PTS: 1 REF: p. 315 OBJ: LO 9-2 3. If a merchandise line has a gross margin of 35 percent and sales per dollar of inventory investment of 4.0, what is its GMROI? a. $ 2.60 b. $ 1.40 c. $ 6.15 d. $11.43 e. $14.00 Register to View Answer PTS: 1 REF: p. 315 OBJ: LO 9-2 4. All of the following are methods of dollar merchandise planning EXCEPT: a. stock-to-sales ratio. b. percentage variation. c. basic stock. d. weeks supply. e. valuation turns. Register to View Answer PTS: 1 REF: p. 316 OBJ: LO 9-2 5. Which of the following is NOT a formal way of deciding inventory levels? a. Stock-to-sales ratio b. Gross margin contribution c. Basic stock d. Weeks supply e. Percentage variation Register to View Answer PTS: 1 REF: p. 316 OBJ: LO 9-2 6. The _____ method of merchandise planning requires that, in addition to a base stock level, there will be a variable amount of inventory that will increase or decrease at the beginning of each sales period. a. base level b. base BOM contribution c. basic stock d. stock-to-sales e. average stock Register to View Answer PTS: 1 REF: p. 317 OBJ: LO 9-2 7. When retailers believe that it is necessary to have a given level of inventory available at all times, they will likely use the _____ method for inventory management. a. basic trade b. basic stock c. weeks supply d. consumer demand e. stock-to-sales Register to View Answer PTS: 1 REF: p. 317 OBJ: LO 9-2 8. The _____ is NOT considered when calculating BOM stock using the basic stock method. a. number of months in the season b. total planned sales for the season c. number of weeks in the retailers merchandising season d. estimated turnover rate for the season e. basic stock level needed Register to View Answer PTS: 1 REF: p. 318 OBJ: LO 9-2 9. Determine the buyers BOM for October, using the basic stock method, based on the following in formation: planned sales for October = $150,000; average monthly sales = $175,000; average stock for the season = $500,000. a. $150,000 b. $325,000 c. $475,000 d. $825,000 e. $955,000 Register to View Answer PTS: 1 REF: p. 318 OBJ: LO 9-2 10. Determine the BOM for March, using the basic stock method, based on the following information: planned sales for March = $175,000; total spring sales = $600,000; spring months = 4; inventory turnover = 2. a. $175,000 b. $275,000 c. $325,000 d. $425,000 e. $600,000 Register to View Answer PTS: 1 REF: p. 318 OBJ: LO 9-2 11. Determine the buyers BOM for March, using the percentage variation method, based on the following information: planned sales for March = $200,000; total spring sales = $600,000; spring months = 4; in ventory turnover = 2.5. a. $150,000 b. $240,000 c. $260,000 d. $280,000 e. $600,000 Register to View Answer PTS: 1 REF: p. 318 OBJ: LO 9-2 12. The _____ dollar inventory planning technique states that the percentage fluctuations in monthly stock from average stock should be half as great as the percentage fluctuations in monthly sales from aver age sales. a. partial stock b. stock-to-sales c. basic stock d. percentage variation e. weeks supply Register to View Answer PTS: 1 REF: p. 318 OBJ: LO 9-2 13. When a retailer has a yearly turnover rate that is _____ or more times a year, the percentage variation method is most commonly used for determining planned stock levels. a. 4 b. 6 c. 8 d. 10 e. 12 Register to View Answer PTS: 1 REF: p. 318 OBJ: LO 9-2 14. Determine the buyers BOM for November, using the percentage variation method, based on the fol lowing information: planned sales for November = $300,000; average monthly sales = $100,000; aver age stock for the season = $500,000. a. $300,000 b. $400,000 c. $500,000 d. $1,000,000 e. $4,000,000 Register to View Answer PTS: 1 REF: p. 318 OBJ: LO 9-2 15. Determine the buyers BOM for July, using the stock-to-sales method, based on the following inform ation: planned sales for July = $300,000; planned stock-to-sales ratio for July = 3; average monthly sales = $325,000; average stock for the season = $825,000. a. $288,462 b. $500,000 c. $530,770 d. $900,000 e. $926,000 Register to View Answer PTS: 1 REF: p. 319 OBJ: LO 9-2 16. Inventory planning based on the weeks supply method would be most appropriate for a _____, where inventories are planned on a weekly basis and where sales do not fluctuate substantially. a. supermarket b. furniture store c. toy store d. sporting goods store e. campus bookstore Register to View Answer PTS: 1 REF: p. 319 OBJ: LO 9-2 17. Determine the buyers BOM for January, using the stock-to-sales method, based on the following in formation: planned sales for January = $250,000; planned stock-to-sales ratio for January = 2.7; aver age monthly sales = $210,000; average stock for the season = $700,000. a. $770,000 b. $460,000 c. $259,259 d. $675,000 e. $950,000 Register to View Answer PTS: 1 REF: p. 319 OBJ: LO 9-2 18. _____ is the dollar amount that a buyer can currently spend on merchandise without exceeding a planned dollar stock level. a. Planning monies b. Open-to-buy c. Inventory shortage funds d. Free money e. EOM shortfall funds Register to View Answer PTS: 1 REF: p. 320 OBJ: LO 9-3 19. The open-to-buy (OTB) concept provides information about how much the buyer can order: a. at the beginning of a merchandising period. b. once all previously ordered merchandise is received. c. during the middle of a merchandising period. d. at the end of a merchandising period. e. anytime during the merchandising period. Register to View Answer PTS: 1 REF: p. 320 OBJ: LO 9-3 20. The following information is known for a buyer of cosmetics: Planned sales for the month Planned EOM stock Planned reductions BOM inventory Merchandise commitments for delivery What is the cosmetic departments open-to-buy at retail? $42,000 $60,000 $4,800 $72,000 $9,600 a. b. c. d. e. Register to View Answer $10,000 $25,200 $32,400 $34,800 $38,600 PTS: 1 REF: p. 320 OBJ: LO 9-3 21. The following information is known for an auto parts buyer: Merchandise commitments this month Planned sales for the month BOM inventory Planned EOM stock Planned reductions $45,000 $180,000 $350,000 $345,000 $12,000 What is the auto parts departments open-to-buy at retail? a. $142,000 b. $170,000 c. $525,000 d. $537,000 e. $574,000 Register to View Answer PTS: 1 REF: p. 320 OBJ: LO 9-3 22. Planned purchases at retail are computed as follows: a. planned sales plus planned reductions plus planned EOM stock minus planned BOM stock. b. planned sales minus planned reductions plus planned BOM stock plus planned EOM stock. c. planned sales plus planned reductions minus commitments for future delivery. d. planned BOM stock plus planned sales plus planned reductions minus EOM stock. e. planned sales plus planned reductions plus planned EOM stock plus planned BOM stock. Register to View Answer PTS: 1 REF: p. 320 OBJ: LO 9-3 23. The following information is known for a buyer of toys: Planned sales for the month Planned EOM stock Planned reductions BOM inventory Merchandise commitments for delivery What is the toy departments open-to-buy at retail? a. $4,000 b. $21,000 c. $24,000 $35,000 $50,000 $4,000 $60,000 $8,000 d. e. Register to View Answer $29,000 $39,000 PTS: 1 REF: p. 320 OBJ: LO 9-3 24. The following planned figures have been developed by a buyer for next month: sales = $100,000; re ductions = $7,000; EOM stock = $250,000; BOM stock = $300,000; commitments for delivery during next month = $15,000. What are planned purchases and OTB for the buyer? a. $57,000; $42,000 b. $157,000; $142,000 c. $57,000; $72,000 d. $39,000; $54,000 e. $175,000; $412,000 Register to View Answer PTS: 1 REF: p. 320 OBJ: LO 9-3 25. The following information is known for an electronics buyer: Merchandise commitments this month Planned sales for the month BOM inventory Planned EOM stock Planned reductions $45,000 $120,000 $350,000 $345,000 $12,000 What is the electronics departments open-to-buy at retail? a. $73,000 b. $82,000 c. $127,000 d. $402,500 e. $750,000 Register to View Answer PTS: 1 REF: p. 320 OBJ: LO 9-3 26. The difference between a retailers planned purchases and the retailers open-to-buy is: a. merchandise that the retailer has already ordered, but has not received. b. the discounts offered by vendors on earlier purchases. c. reductions to be taken later in the selling peri od. d. the difference between the BOM and EOM stock levels. e. A retailers planned purchases is always equal to the retailers open-to-buy. Register to View Answer PTS: 1 REF: p. 320 OBJ: LO 9-3 27. The following planned figures have been developed by a buyer for next month: sales = $25,000; reduc tions = $1,500; BOM stock = $80,000; EOM stock = $88,000; commitments already made for delivery during next month = $5,600. What are planned purchases and OTB for the buyer? a. $18,500; $12,900 b. $34,500; $40,100 c. $18,500; $24,100 d. e. Register to View Answer $34,500; $28,900 $26,500; $18,500 PTS: 1 REF: p. 320 OBJ: LO 9-3 28. If a buyer lowers planned reductions by $7,000 for the month, this will: a. reduce planned reductions for the following month by one half that amount; $3,500. b. reduce BOM inventory by $7,000. c. lower this months OTB by $7,000. d. raise planned purchases by $7,000 for this month. e. raise this months OTB by $7,000. Register to View Answer PTS: 1 REF: p. 320 OBJ: LO 9-3 29. A $1,000 increase in planned reductions for the month would: a. raise EOM inventory by $2,000. b. lower this months OTB by $1,000. c. increase BOM inventory by $1,000. d. increase this months OTB by $1,000. e. lower planned purchases by $1,000 for this month. Register to View Answer PTS: 1 REF: p. 320 OBJ: LO 9-3 30. Which of the following is NOT a common buying error that may cause adjustments to be made to the retailers OTB? a. Buying the wrong type of merchandise b. Buying merchandise at the wrong price levels c. Having too much or too little basic stock on hand d. Buying from very few vendors e. Failing to identify the seasons hot items early enough in the season Register to View Answer PTS: 1 REF: p. 321 OBJ: LO 9-3 31. The three dimensions of the optimal merchandise mix are: a. breadth, depth, and concentration. b. merchandise lines, breadth, and density. c. variety, density, and merchandise lines. d. breadth, consistency, and depth. e. variety, breadth, and depth. Register to View Answer PTS: 1 REF: p. 322 OBJ: LO 9-4 32. The _____ is a group of products that are closely related because they are intended for the same end use, are sold to the same customer group, or fall within a given price range. a. merchandise line b. merchandise variety c. battle of the brands d. product assortment e. Register to View Answer unit management PTS: 1 REF: p. 322 OBJ: LO 9-4 33. _____ refers to the number of different lines the retailer stocks in the store. a. Variety b. Assortment c. Breadth d. Depth e. Product line mix Register to View Answer PTS: 1 REF: p. 322 OBJ: LO 9-4 34. _____ refers to the management of merchandise categories, or lines, rather than individual products, as a strategic business unit. a. Category management b. Breadth management c. Assortment management d. Brand management e. Merchandise management Register to View Answer PTS: 1 REF: p. 322 OBJ: LO 9-4 35. _____ refers to the number of merchandise brands that are found in a merchandise line. a. Choice b. Variety c. Assortment d. Breadth e. Depth Register to View Answer PTS: 1 REF: p. 322 OBJ: LO 9-4 36. A(n) _____ occurs when retailers have their own products competing with the manufacturers products for shelf space and control over display location. a. category conflict b. inventory shortage c. open-to-buy d. battle of the brands e. vendor analysis Register to View Answer PTS: 1 REF: p. 323 OBJ: LO 9-4 37. _____ is when the vendor allows the retailer extra time before payment is due for goods. a. FOB destination b. Extra dating c. Space reduction d. FOB factory e. Consignment Register to View Answer PTS: 1 REF: p. 324 OBJ: LO 9-4 38. Which of the following factors is NOT a constraint on the retailers optimal merchandise mix? a. The space available in a store b. The buyers experience with the current product line The merchandise turnover rate The way the target market behaves The dollar investment available c. d. e. Register to View Answer PTS: 1 REF: p. 324 OBJ: LO 9-4 39. To alleviate space constraints, some retailers become involved in: a. buying on consignment. b. negotiating new building plans. c. charging manufacturers slotting fees. d. using extra dating on bills. e. adding more shelf space. Register to View Answer PTS: 1 REF: p. 325 OBJ: LO 9-4 40. When deciding on which products to stock, buyers encounter all of the following conflicts EXCEPT: a. maintaining a strong in-stock position on genuinely new items while avoiding the losers. b. maintaining a high turnover goals at the same time you are maintaining a high margin on all items in the store. c. maintaining an adequate selection for custom ers while not confusing them. d. maintaining space productivity and utilization while not congesting the store. e. maintaining an adequate stock of the basic items while still keeping money aside to capitalize on unforeseen opportunities. Register to View Answer PTS: 1 REF: p. 331-332 OBJ: LO 9-4 41. _____ is NOT a common factor considered when selecting a merchandise source. a. Trade terms b. Fabric colors used c. Consumers perception of the manufacturers reputation d. Projected markup on the merchandise e. After-sale service from the vendor Register to View Answer PTS: 1 REF: p. 333 OBJ: LO 9-5 42. Which of the following is PROBABLY NOT an important criterion to use when selecting a merchand ise source? a. Distribution-center processing time b. Consumers perception of the manufacturers reputation c. Interest rates charged by your bank to finance this purchase d. Reliability of delivery from the vendor e. Where the product is manufactured Register to View Answer PTS: 1 REF: p. 333 OBJ: LO 9-5 43. _____ is a record of all purchases a retailer made last year, discounts granted by the vendors, transport ation charges paid, the original markup, markdowns, and the season-ending gross margin on a vendors merchandise. a. Source book b. Vendor profitability analysis statement c. Vendors blue book d. Vendor report e. Confidential vendor analysis Register to View Answer PTS: 1 44. A vendor profitability analysis statement: a. b. c. d. e. Register to View Answer PTS: 1 REF: p. 336 OBJ: LO 9-5 is a vendors financial statement that is made available to all retailers. is a schedule maintained by the retailer which shows each vendors initial data for new lines, shipment of orders, and gross margins. is a retailers financial statement used by the vendor for determining available credit limits. is a retailers analysis of the profitability of the different vendors and their lines from the prior year(s). breaks down vendors using an A-B-C classification based on the reliability of delivery from each vendor. REF: p. 336 OBJ: LO 9-5 45. The _____ provides a three-year financial summary as well as the names, titles, and negotiating points of all the vendors sales staff. a. black book b. vendor classification book c. vendor profitability book d. buyers guide e. confidential vendor analysis Register to View Answer PTS: 1 REF: p. 336 OBJ: LO 9-5 46. The effectiveness of the buyer-vendor relationship depends on the: a. final negotiated prices. b. negotiation skills of the buyer and the economic power of the firms involved. c. profitability of the line for the retailer. d. method of shipment. e. markdown money. Register to View Answer PTS: 1 47. A trade discount is another name for a: a. REF: p. 339 OBJ: LO 9-6 promotional discount. b. c. d. e. Register to View Answer functional discount. cumulative quantity discount. dating discount. cash discount. PTS: 1 REF: p. 340 OBJ: LO 9-6 48. When the manufacturer offers a retailer a percentage discount in exchange for performing certain wholesaling and retailing services, the manufacturer is offering a _____ discount. a. cash rebate b. Trade c. performance incentive d. Quantity e. Cash Register to View Answer PTS: 1 REF: p. 340 OBJ: LO 9-6 49. Assume that the list price of an item is $1,200 and that the chain of discounts is 40-20-10. How much would a retail buyer pay? a. $480.00 b. $518.40 c. $576.00 d. $720.00 e. $840.60 Register to View Answer PTS: 1 REF: p. 340 OBJ: LO 9-6 50. When a retailer makes a single purchase of 25 or more cases of wine, the vendor offers an extra 20 percent discount. This is an example of a: a. noncumulative-quantity discount. b. promotional allowance. c. cash discount. d. functional discount. e. cumulative-quantity discount. Register to View Answer PTS: 1 REF: p. 341 OBJ: LO 9-6 51. When Sebring Textiles makes a single purchase of 50 cases of Italian Marble tile, the vendor offers a 20 percent discount off the list price. However, if Sebring Textiles purchases between 50 and 99 cases at one time, the vendor informs Sebring that it will get 30 percent off the list price. This is an example of a: a. rebate. b. cumulative-quantity discount. c. cash discount. d. functional discount. e. noncumulative-quantity discount. Register to View Answer PTS: 1 52. A cumulative-quantity discount is based on: a. b. REF: p. 341 OBJ: LO 9-6 the total amount of merchandise purchased from a vendor over a specific period of time. the total amount of merchandise purchased since you began dealing with a vendor. the total purchases made from a group of vendors over a given time period. the amount of free merchandise a vendor is offering a single purchase. c. d. e. Register to View Answer PTS: 1 REF: p. 341 OBJ: LO 9-6 53. A _____ is based on the total amount purchased during a single purchasing event. a. single purchase discount b. cumulative discount c. noncumulative discount d. one-time discount e. functional discount Register to View Answer PTS: 1 REF: p. 341 OBJ: LO 9-6 54. A _____ discount is one that a vendor provides a retailer for running a special promotion for a manu facturer. a. promotional b. advertising rebate c. psychological d. special e. cash Register to View Answer PTS: 1 REF: p. 342 OBJ: LO 9-6 55. Ten days before Halloween, your local candy wholesaler puts all of its Halloween candy on sale. This is an example of which type of discount? a. Seasonal discount b. Quantity discount c. Zone pricing d. Promotional allowance e. Smart discount, since Valentines Day is approaching and the wholesaler does not want to be stuck with the merchandise Register to View Answer PTS: 1 REF: p. 342 OBJ: LO 9-6 56. The main Marshall Field Department Store in downtown Chicago had a sale on water skis and swim suits in early November. Marshall Fields is offering its customers which of the following pricing dis counts? a. Promotional allowance b. Christmas discount c. Seasonal discount d. Quantity discount e. Zone pricing Register to View Answer PTS: 1 REF: p. 342 OBJ: LO 9-6 57. A cash discount is quoted to a retailer as 5/10, net 30. This means that: a. the retailer will get a 10 percent discount if the bill is paid in 30 days. a 5 percent discount will be granted to the retailer if the bill is paid in 10 days. the total bill must be paid within 10 days. the bill is not due for 30 days, but a discount of 50 percent can be earned for paying it sooner. a discount of 5 percent can be earned if paid off in less than 10 installments over the next 30 days. b. c. d. e. Register to View Answer PTS: 1 REF: p. 342-343 OBJ: LO 9-6 58. A cash discount is quoted to a retailer as 3/10, net 60. This means that: a. a discount of 3 percent can be earned if paid off in 10 installments over the next 60 days. b. the retailer will get a 10 percent discount if the total is paid in 60 days. c. a 3 percent discount will be granted to the retailer if the bill is paid in 10 days. d. the bill is due in 60 days, but a discount of 3 percent to 10 percent can be earned for paying it off sooner. e. the total bill must be paid within 10 days. Register to View Answer PTS: 1 REF: p. 342-343 OBJ: LO 9-6 59. A $1,000 invoice is dated November 28, with terms 2/20, net 30, EOM. What should the retailer pay the vendor on January 15? a. $1,000 b. $1,020 c. $980 d. $800 e. $1,000 plus a months worth of interest Register to View Answer PTS: 1 REF: p. 342-343 OBJ: LO 9-6 60. A buyer is given cash discount terms of 4/10, net 30, MOM. The invoice for the goods is dated September 9. When will the discount period expire? a. September 14 b. September 25 c. October 1 d. October 10 e. November 15 Register to View Answer PTS: 1 REF: p. 342-343 OBJ: LO 9-6 61. A buyer is given cash discount terms of 3/10, net 30, MOM. The invoice for the goods is dated May 14. When will the discount period expire? a. May 25 b. May 22 c. June 10 d. June 15 e. Register to View Answer June 30 PTS: 1 REF: p. 343 OBJ: LO 9-6 62. If a vendor offers terms of 6/10, net 30, EOM and the goods are delivered November 1 with the in voice dated October 27, when does your discount period end? a. November 6 b. December 10 c. December 3 d. November 10 e. December 7 Register to View Answer PTS: 1 REF: p. 343 OBJ: LO 9-6 63. _____ allows the retailer to pay the invoice in advance of the end of the cash period and earn an extra discount. a. Advance discount b. Functional discount c. Momentum discount d. Promotional allowance e. Anticipation Register to View Answer PTS: 1 REF: p. 343 OBJ: LO 9-6 64. A vendor offers a retailer FOB shipping point terms. This means that the retailer must pay: a. no transportation costs. b. transportation costs from the shipping point. c. all transportation costs from the vendors fact ory. d. half of the transportation costs. e. only for those transportation costs incurred after the goods leave the retailers factory. Register to View Answer PTS: 1 REF: p. 343 OBJ: LO 9-6 65. When a manufacturer quotes the same price for the same merchandise to buyers in Cleveland, Ohio; Los Angeles, California; and Orlando, Florida the manufacturer is probably quoting the retailers a _____ price. a. zone b. basing point c. FOB destination d. FOB equal e. FOB shipping point Register to View Answer PTS: 1 REF: p. 343 OBJ: LO 9-6 66. If delivery terms are FOB factory, who would be responsible for the transportation charges? a. The transportation company b. The vendor c. The buyer d. The buyer and the vendor share the expenses e. The final customer Register to View Answer PTS: 1 REF: p. 343 OBJ: LO 9-6 67. _____ occurs when an employee of one of the retailers vendors steals merchandise as it is delivered to the retailer. a. Vendor collusion b. Vendor theft c. Shorting d. Employee theft e. Employee shortage Register to View Answer PTS: 1 REF: p. 344 OBJ: LO 9-7 68. Typical losses involving vendor collusion include all but which of the following? a. The delivery of less merchandise than the re tailer is charged for. b. Removal of good merchandise disguised as old or stale merchandise. c. Stealing other merchandise from the retailers stockroom. d. A customer stealing merchandise while making a purchase. e. Stealing merchandise off the retailers selling floor while making a delivery. Register to View Answer PTS: 1 REF: p. 344 OBJ: LO 9-7 69. When comparing customer theft and employee theft, which of the following statements is false? a. Over a dozen shoppers are caught for every time an employee is caught. b. As many as 30 percent of American workers admit to stealing from their employers, even if it is only a small item. c. Employee theft amounts to over $800 per apprehension. d. The average amount of merchandise recovered from a shoplifter is over $500. e. Employee theft is most prevalent in food stores, department stores, and discount stores. Register to View Answer PTS: 1 REF: p. 345 OBJ: LO 9-7 70. Employee theft, which amounts to _____ per apprehension, is most prevalent in foods stores, depart ment stores, and discount stores. a. less than $50 b. approximately $100 c. approximately $200 d. approximately $500 e. more than $800 Register to View Answer PTS: 1 REF: p. 345 OBJ: LO 9-7 71. _____ occurs when customers or individuals disguised as customers steal merchandise from the retail ers store. a. b. c. d. e. Register to View Answer Vendor collusion Vendor theft Shorting Employee theft Customer theft PTS: 1 REF: p. 345 OBJ: LO 9-7 TRUE/FALSE 1. It is important for anyone considering a career in retailing to understand merchandise management, since all retailing jobs have some contact with the firms merchandising activities. Register to View Answer PTS: 1 REF: p. 313 OBJ: LO 9-1 2. Inventory is the largest investment a retailer makes. Register to View Answer PTS: 1 REF: p. 315 OBJ: LO 9-2 3. Gross margin return on inventory (GMROI) is based on both the retailers inventory turnover and its profit margin. Register to View Answer PTS: 1 REF: p. 315 OBJ: LO 9-2 4. If a particular item has a gross margin of 45 percent and sales per dollar of inventory investment of 3.0, its GMROI would be $1.65. Register to View Answer PTS: 1 REF: p. 315 OBJ: LO 9-2 5. Service retailers cannot stockpile inventories in anticipation of future demand as other retailers do. Register to View Answer PTS: 1 REF: p. 317 OBJ: LO 9-2 6. Retailers that believe it is necessary to have a given level of inventory available at all times use the fixed stock method (FSM) of inventory planning. Register to View Answer PTS: 1 REF: p. 317 OBJ: LO 9-2 7. The basic stock method (BSM) of inventory planning requires that retailers always have a base level of inventory investment, regardless of the predicted sales volume for the upcoming period. Register to View Answer PTS: 1 REF: p. 317 OBJ: LO 9-2 8. The basic stock method (BSM) of inventory planning is most useful when a retailer has a low turnover rate or when sales are erratic. Register to View Answer PTS: 1 REF: p. 318 OBJ: LO 9-2 9. The basic stock method (BSM) of inventory planning works best when the inventory turnover is less than six times a year. Register to View Answer PTS: 1 REF: p. 318 OBJ: LO 9-2 10. Yearly inventory turnover rate is irrelevant when using the percentage variation method (PVM) of in ventory planning. Register to View Answer PTS: 1 REF: p. 318 OBJ: LO 9-2 11. The percentage variation method (PVM) of inventory planning assumes that the percentage fluctu ations in monthly stock from average stock should be half as great as the percentage fluctuations in monthly sales from average sales. Register to View Answer PTS: 1 REF: p. 318 OBJ: LO 9-2 12. Generally, the weeks supply method (WSM) of inventory planning works best when used by retailers who have stable sales from week to week. Register to View Answer PTS: 1 REF: p. 319 OBJ: LO 9-2 13. Retailers must be able to determine their own desired stock-to-sale ratios from their organizations his torical data, since they cannot get such data elsewhere. Register to View Answer PTS: 1 REF: p. 319 OBJ: LO 9-2 14. When using the stock-to-sales method, an increase in the planned stock-to-sales ratio will result in a decrease in the BOM inventory. Register to View Answer PTS: 1 REF: p. 319 OBJ: LO 9-2 15. If you desired an inventory turnover rate of 2.0 for the upcoming six-month season, your average BOM stock-to-sales ratio would be 2.0. Register to View Answer PTS: 1 REF: p. 320 OBJ: LO 9-2 16. Dollar merchandise control over inventory purchases is frequently accomplished through a technique called open-market merchandising. Register to View Answer PTS: 1 REF: p. 320 OBJ: LO 9-3 17. Open-to-buy (OTB) can only be changed at the beginning of a merchandise buying period. Register to View Answer PTS: 1 REF: p. 320 OBJ: LO 9-3 18. If the retailer has no purchase commitments for future delivery, then its OTB and planned purchases at retail should be equal. Register to View Answer PTS: 1 REF: p. 320 OBJ: LO 9-3 19. If planned reductions for June increase by $1,000, June OTB will increase by $1,000. Register to View Answer PTS: 1 REF: p. 320 OBJ: LO 9-3 20. If planned purchases at retail for March are $178,000 and commitments at retail for current delivery are $21,000, then the open-to-buy for March equals $199,000. Register to View Answer PTS: 1 REF: p. 320 OBJ: LO 9-3 21. It is important to remember that open-to-buy (OTB) is a fixed quantity that should never be exceeded. Register to View Answer PTS: 1 REF: p. 320 OBJ: LO 9-3 22. The open-to-buy (OTB) concept provides information about how much the buyer can order at the be ginning of a merchandising period and not at any other point in time during the merchandising period. Register to View Answer PTS: 1 REF: p. 320 OBJ: LO 9-3 23. There is no way for retailers to increase their OTB once they have met their limit. Register to View Answer PTS: 1 REF: p. 320 OBJ: LO 9-3 24. A common error made by retail buyers is not buying too many trendy fashions. Register to View Answer PTS: 1 REF: 321 OBJ: p. LO 9-3 25. A common error made by retail buyers is having too much or too little basic stock on hand. Register to View Answer PTS: 1 REF: p. 321 OBJ: LO 9-3 26. Failure to identify a seasons hot item(s) early enough is a common buying error. Register to View Answer PTS: 1 REF: p. 321 OBJ: LO 9-3 27. Failure to let the vendor assist the buyer by adding new items or new colors to the mix is a common buying error. Register to View Answer PTS: 1 REF: p. 321 OBJ: LO 9-3 28. Products that are grouped together because they are closely related and are intended for the same end use are called a retailers merchandise mix. Register to View Answer PTS: 1 REF: p. 322 OBJ: LO 9-4 29. The three dimensions of the optimal merchandise mix include: variety, breadth, and profitability. Register to View Answer PTS: 1 REF: p. 322 OBJ: LO 9-4 30. Breadth refers to the number of different merchandise lines a retailer stocks in its store. Register to View Answer PTS: 1 REF: p. 322 OBJ: LO 9-4 31. Convenience stores usually seek to highlight breadth in their inventories. Register to View Answer PTS: 1 REF: p. 323 OBJ: LO 9-4 32. Depth is the average number of SKUs within each brand of the merchandise line. Register to View Answer PTS: 1 REF: p. 323 OBJ: LO 9-4 33. If the decision is made by a retailer to emphasize variety, it should also emphasize breadth and depth. After all, you cannot emphasize one element of the merchandise mix without emphasizing the other two. Register to View Answer PTS: 1 REF: p. 324 OBJ: LO 9-4 34. The optimal merchandise mix will be different for every store. Register to View Answer PTS: 1 REF: p. 324 OBJ: LO 9-4 35. For most retailers, the limited amount of space in their store is a constraining factor on their optimal merchandise mix. Register to View Answer PTS: 1 REF: p. 325 OBJ: LO 9-4 36. Research has found that by cutting the number of SKUs offered, retailers risk lowering customer per ceptions of selection. Register to View Answer PTS: 1 REF: p. 325 OBJ: LO 9-4 37. A retailer selling a seasonal item would want to be 75 percent sold out at the planned out-of-stock date. Register to View Answer PTS: 1 REF: p. 326 OBJ: LO 9-4 38. The annual cost to retailers for carrying inventory is between 20 to 25 percent. Register to View Answer PTS: 1 REF: p. 326 OBJ: LO 9-4 39. Retailers who analyze past sales records, but also become aware of changing market conditions when purchasing, will be more profitable. Register to View Answer PTS: 1 REF: p. 328 OBJ: LO 9-4 40. Most retailers have found it relatively easy to maintain both high merchandise turnover rates and high gross margins. Register to View Answer PTS: 1 REF: p. 332 OBJ: LO 9-4 41. A retailers primary consideration in choosing a vendor or merchandise source should be the projected markup of the product(s) in question. Register to View Answer PTS: 1 REF: p. 333 OBJ: LO 9-5 42. After-sale service, inventory carrying costs, trade terms, reputation, and country of origin are the only factors a retailer should consider in vendor selection. Register to View Answer PTS: 1 REF: p. 333 OBJ: LO 9-5 43. While many different vendor selection criteria are discussed in the text, a products country of origin continues to lose importance as customers now think in terms of a global, rather than national, scale. Register to View Answer PTS: 1 REF: p. 334 OBJ: LO 9-5 44. The use of private label brands increases as the perceived consequences of making a buying mistake decrease. Register to View Answer PTS: 1 REF: p. 336 OBJ: LO 9-5 45. One of a retailers greatest assets when dealing with a vendor is the retailers past experiences with that vendor. Register to View Answer PTS: 1 REF: p. 336 OBJ: LO 9-5 46. Buyers should always approach vendors with two important pieces of information: the vendor profit ability analysis statement and the confidential vendor analysis. Register to View Answer PTS: 1 REF: p. 336 OBJ: LO 9-5 47. The vendor profitability analysis statement provides a 10-year financial summary of all past dealings with a vendor and the names, titles, and key negotiating tactics of each member of the vendors sales staff. Register to View Answer PTS: 1 REF: p. 336 OBJ: LO 9-5 48. The confidential vendor analysis lists different companies than the profitability analysis statement for the purposes of protecting supplier identity. Register to View Answer PTS: 1 REF: p. 336 OBJ: LO 9-5 49. During negotiations between buyer and seller, price and discount terms are seldom negotiated, because they are set by the vendor and by law cannot be adjusted to individual buyers. Register to View Answer PTS: 1 REF: p. 339 OBJ: LO 9-6 50. The buyer is responsible for negotiating the delivery dates of the merchandise when making a pur chase. Register to View Answer PTS: 1 REF: p. 339 OBJ: LO 9-6 51. The retailer and vendor should seek to make negotiations a win-win situation. Register to View Answer PTS: 1 REF: p. 339 OBJ: LO 9-6 52. A basic guideline of the negotiation process is to trade what is cheap to you but valuable to the other party, for what is valuable to you but cheap to the other party. Register to View Answer PTS: 1 REF: p. 339 OBJ: LO 9-6 53. Trade discounts are sometimes referred to as functional discounts. Register to View Answer PTS: 1 REF: p. 340 OBJ: LO 9-6 54. A trade discount of list less 40-20-10, assuming that the list price is $500, would result in the retailer paying $240.00 for the item. Register to View Answer PTS: 1 REF: p. 340 OBJ: LO 9-6 55. Assume the manufacturer sells through a channel that includes manufacturers agents, wholesalers, and small retailers. A 35-20-10 trade discount on an item with a retail price of $1,000 means the retailer would pay the manufacturer or wholesaler $468.00 for the product. Register to View Answer PTS: 1 REF: p. 340 OBJ: LO 9-6 56. Trade discounts are typically given by manufacturers to retailers and wholesalers to compensate them for performing certain services for the manufacturer. Register to View Answer PTS: 1 REF: p. 340 OBJ: LO 9-6 57. Trade discounts are illegal when they do not correctly reflect the costs of the intermediaries services. Register to View Answer PTS: 1 REF: p. 340 OBJ: LO 9-6 58. A quantity discount based on the total amount purchased over a given period of time is called a cumu lative-quantity discount. Register to View Answer PTS: 1 REF: p. 341 OBJ: LO 9-6 59. Wal-Mart purchases enormous quantities of merchandise from both Lever Brothers and Procter & Gamble. As a result, both manufacturers offer Wal-Mart a discount based on the dollar value of pur chases over a given period of time. This price reduction is called a non-cumulative quantity discount. Register to View Answer PTS: 1 REF: p. 341 OBJ: LO 9-6 60. A functional discount is a reduction in price given to retailers to compensate them for their promotion al expenses. Register to View Answer PTS: 1 REF: p. 342 OBJ: LO 9-6 61. A seasonal discount is given by suppliers to retailers that purchase and take delivery of merchandise during the off-season. Register to View Answer PTS: 1 REF: p. 342 OBJ: LO 9-6 62. Seasonal discounts are now illegal in the United States. Register to View Answer PTS: 1 REF: p. 342 OBJ: LO 9-6 63. A cash discount with the terms 2/10, net 30, means that the bill is due in full within two weeks or 10 business days in order to claim a 30 percent discount. Register to View Answer PTS: 1 REF: p. 342-343 OBJ: LO 9-6 64. If a retailer receives the merchandise on May 1 with an invoice dated April 29, having 3/10, net 30, EOM, as its terms, then the discount period is over June 10. Register to View Answer PTS: 1 REF: p. 343 OBJ: LO 9-6 65. If a retailer receives the merchandise on March 29 with an invoice dated March 20 having 8/10, net 30, EOM, as its terms, then the discount period is over on April 1. Register to View Answer PTS: 1 REF: p. 343 OBJ: LO 9-6 66. Extra dating allows the retailer some extra or free days before the period of payment begins. Register to View Answer PTS: 1 REF: p. 343 OBJ: LO 9-6 67. The shipping arrangement whereby the vendor pays all transportation costs is called FOB shipping point. Register to View Answer PTS: 1 REF: p. 343 OBJ: LO 9-6 68. FOB factory implies that the retailer takes title for merchandise at the manufacturers factory. Register to View Answer PTS: 1 REF: p. 343 OBJ: LO 9-6 69. When using FOB destination, the vendor pays the freight and the buyer takes title at the manufacturer s factory. Register to View Answer PTS: 1 REF: p. 343 OBJ: LO 9-6 70. The retailer needs to design the receiving and handling area to minimize theft as this is a high-theft area. Register to View Answer PTS: 1 REF: p. 344 OBJ: LO 9-7 71. Vendor collusion often involves both a delivery person and a retailer employee with the two splitting the profit. Register to View Answer PTS: 1 REF: p. 344 OBJ: LO 9-7 72. Employee theft is most prevalent in food stores, department stores, and discount stores since these stores are usually large in size, sales volume, and number of employees, and often lack close supervi sion of employees. Register to View Answer PTS: 1 REF: p. 345 OBJ: LO 9-7 73. Employee theft averages about $300 per apprehension. Register to View Answer PTS: 1 REF: p. 345 OBJ: LO 9-7 74. Approximately 30 percent of American workers have admitted stealing from their employers. Register to View Answer PTS: 1 REF: p. 345 OBJ: LO 9-7 75. Workers and shoppers must be informed when they are being monitored. Register to View Answer PTS: 1 REF: p. 345 OBJ: LO 9-7 76. The amount of retail floor space the retailer needs is related to the physical dimensions of the mer chandise and the safety stock level needed to maintain the desired rate of stock turnover. Register to View Answer PTS: 1 REF: p. 345 OBJ: LO 9-7 77. Theft in transit is a rarity today; thus, most retailers seldom worry about it. Register to View AnswerESSAY PTS: 1 REF: p. 347 OBJ: LO 9-7 1. What is gross margin return on inventory (GMROI), and why is it important to retailers? ANS: Gross margin return on inventory is gross margin divided by average inventory at cost; alternatively, it is the gross margin percent multiplied by net sales divided by average inventory investment. Net sales are typically computed on an annual or 12-month basis. As inventory is sold, new stock must to be purchased, displayed, and sold once again. If a retailers in ventory continues to build up, then the retailer either has too much money tied up in inventory or is not making the sales it was expecting; both situations are problematic. Likewise, the retailer who is fre quently out of stock will quickly lose customers. This is why the business-trade press and retailers take such an interest in inventory levels as different seasons approach. On the other hand, if the inventory is not sold, the costs involved in carrying excess inventory can force the retailer into taking extra mark downs in addition to having to pay interest on the inventory investment. Because inventory is the largest investment retailers make, gross margin return on inventory (GMROI) assumes much importance to retailers. PTS: 1 REF: p. 314-315 OBJ: LO 9-2 2. Explain the four different methods for planning dollars invested in merchandise. ANS: The four different methods for planning dollars invested in merchandise are: (1) basic stock, (2) per centage variation, (3) weeks supply, and (4) the stock-to-sales-ratio method. Basic Stock Method: The basic stock method (BSM) is used when retailers believe that it is necessary to have a given level of inventory available at all times. It requires that the retailer always have a base level of inventory investment regardless of the predicted sales volume. In addition to the base stock level, there will be a variable amount of inventory that will increase or decrease at the beginning of each sales period in the same dollar amount as the periods sales are expected to increase or decrease. The basic stock method works best if a retailer has a low inventory-turnover rate or if sales are erratic. Percentage-Variation Method: This method is used when the retailer has a high annual invent ory-turnover ratesix or more times a year. The percentage variation method assumes that the per centage fluctuations in monthly stock from average stock should be half as great as the percentage fluctuations in monthly sales from average sales. Weeks Supply Method: Generally, the WSM formula is used by retailers such as grocers, whose in ventories are planned on a weekly, not monthly, basis and where sales do not fluctuate substantially. It states that the inventory level should be set equal to a predetermined number of weeks supply. The predetermined number of weeks supply is directly related to the inventory-turnover rate desired. In the WSM, inventory level in dollars varies proportionally with forecast sales. Thus, if forecast sales triple, then inventory in dollars will also triple. Having determined the number of weeks supply to be stocked and the average weekly sales, stock levels can be replenished on a frequent or regular basis to guard against stockouts. Stock-to-Sales Method: This method requires the retailer to have a beginning-of-the-month stock-tosales ratio. This ratio tells the retailer how much inventory is needed at the beginning of the month to support that months estimated sales. Stock-to-sales ratios can be obtained from internal or external sources. These ratios should only be used as a guide to determine how much inventory to have on hand at the beginning of each month. PTS: 1 REF: p. 316-320 OBJ: LO 9-2 3. How is open-to-buy (OTB) calculated? ANS: Open-to-buy is calculated as follows: Planned sales + planned reductions + planned end of month inventory - planned beginning of month inventory = open-to-buy. PTS: 1 REF: p. 320 OBJ: LO 9-3 4. Why should a retailers open-to-buy (OTB) be allowed to change? ANS: OTB represents the dollar amount that a buyer can currently spend on merchandise without exceeding the planned dollar stock discussed previously. When planning for any given month, the buyer will not necessarily be able to purchase a dollar amount equal to the planned dollar stock for that month. This is because some merchandise may be already on order but not yet delivered. The OTB figure should not be set in stone because it can be exceeded. Consumer needs are the dominant consideration. If ac tual sales exceed planned sales, then additional quantities should be ordered above those scheduled for purchase according to the merchandise budget; however, this should not be a common occurrence. If it is, then the sales planning process is flawed. Either the buyers are too conservative in estimating sales or they are buying the wrong merchandise. In any case, the buyer, along with management, should al ways determine the causes of OTB adjustments. PTS: 1 REF: p. 320-321 OBJ: LO 9-3 5. What are some common buying errors a retailer should avoid when buying merchandise? ANS: Some of the most common buying errors include: Buying merchandise that is priced either too high or too low for the stores target market. Buying the wrong type of merchandise (i.e., too many tops and not enough skirts) or buying merchandise that is too trendy. Having too much or too little basic stock on hand. Buying from too many vendors. Failing to identify the seasons hot items early enough in the season. Failing to let the vendor assist the buyer by adding new items or new colors to the existing mix. (All too often, the original order is merely repeated, resulting in a limited selection.) PTS: 1 REF: p. 321 OBJ: LO 9-3 6. Explain how variety, breadth, and depth influence a retailers merchandise mix. ANS: The variety of the merchandise mix refers to the number of different merchandise lines a retailer chooses to stock in its store. Breadth, also called assortment, refers to the number of brands that are found in a single merchandise line. The breadth might change with time. Merchandise depth refers to the average number of stock-keeping units (SKUs) within each brand of the merchandise line. Depth is an acute problem today because all too often retailers are constrained in the number of SKUs they can carry by specific constraining factors. PTS: 1 REF: p. 322-324 OBJ: LO 9-4 7. What factors constrain a retailers optimal merchandise mix, and how can a retailer overcome these constraints? ANS: Merchandise mix decisions are a blend of financial plans that consider the retailers dollar and turnover constraints, the stores space constraints, and the constraints caused by the actions of compet itors. Dollar-Merchandise Constraints: There seldom will be enough dollars to emphasize variety, breadth, and depth simultaneously. Some retailers try to overcome this dollar constraint by shifting the expense of carrying inventory back on the vendor. When a retailer buys a product on consignment, the vendor retains the ownership of the goods, usually establishes the selling price, and is paid only when the goods are sold. Pay from scan helps reduce risk for seasonal products. Manufacturers usually pass along a higher initial cost to the retailer to cover the returns. Its a trade-off that retailers must make product by product or category by category: higher initial margin or less risk. Another approach the re tailer might try to get is extra dating (EX), where the vendor allows the retailer some extra time before paying for the goods. Space Constraints: If depth or breadth is wanted, then space is needed. If variety is to be stressed, then it is also important to have enough empty space to separate the distinct merchandise lines. Most retail ers have operation guides that tell how much space should be between each fixture, rack, display, and so forth. They also have to decide how tall they want their fixtures to be. Retailers have been able to turn this space constraint into an advantage by charging manufacturers slotting fees to carry their products. Merchandise-Turnover Constraints: As the depth of the merchandise is increased, the retailer will be stocking more and more variations of the product to serve smaller and smaller segments. Con sequently, inventory turnover will deteriorate and the chances of being out of stock will increase. One does not have to minimize variety, breadth, and depth to maximize turnover, but one must know how various merchandise mixes will affect inventory turnover. Market Constraints: The three dimensions of variety, breadth, and depth have a profound effect on how the consumer perceives the store and consequently on the customers that the store will attract. The constraining factors make it almost impossible for a retailer to emphasize all three dimensions. However, greater product selection does not necessarily mean that the consumer will get more enjoy ment from the shopping experience. Some consumers may even be more satisfied with smaller selec tion. This is important for retailers using the category management system as category management, in its effort to increase profits, typically reduces the number of SKUs as it seeks to increase inventory turnover. If you are going to lose customers, you should seek to lose the less-profitable ones by properly mixing your merchandise in terms of variety, breadth, and depth within the dollar, space, turnover, and market constraints. PTS: 1 REF: p. 324-326 OBJ: LO 9-4 8. Discuss Radio Frequency Identification tags and their future potential adoption. Discuss how this tech nology could help control inventory and reduce costs. ANS: The retailer tries to achieve optimization of its inventory dollars by closely monitoring its inventory. One of the great difficulties many retailers face is that inventory figures, including perpetual invent ory are often wrong as much as 40 percent of the time. One way to fix (or decrease) the problem is to use radio frequency identification (RFID) barcode data. An RFID tag consists of a tiny digital signal processor embedded in a product, package, or box. It al - lows retailers to account for merchandise without the use of hand counts, which often leads to missed items in the stockroom, on risers, on the wrong shelves, or in customer carts. They also allow for faster reorders (as the merchandise is being sold). Every major retailers chief information officer believes that the widespread adoption of RFID tags is a sure thing and will ultimately enable him/her to track every single product from point of manufacture to checkout. RFID promises absolute inventory con trol, consequent cost reductions, and profit-margin improvements. RFID tagging will produce reams of information ranging from when and where the merchandise was produced to its current location in the supply chain in addition to the customer profile of the purchaser of that merchandise. Thus, RFID can be a great friend to a retailer trying to improve its perpetual inventory system. PTS: 1 REF: p. 326 | p. 354-356 OBJ: LO 9-4 9. Explain how maintaining adequate stock of basic popular items can conflict with having sufficient in ventory dollars to capitalize on unforeseen opportunities. ANS: Maintaining an adequate stock of the basic popular items can conflict with having sufficient inventory dollars to capitalize on unforeseen opportunities. Many times, if the retailer fills out the model stock with recommended quantities, there is little if any money left over for the super buy that is just around the corner. But if the retailer holds out that money and cuts back on basic stock, then customers may be lost and that super buy may never surface. For this reason, it is important that retailers realize that they should never be out of stock on staples and bestselling products. PTS: 1 REF: p. 331 OBJ: LO 9-4 10. On the way to market for the first time, you continually think about the last thing your boss said to you: You should always study vendors with the vendor profitability analysis statement and the con fidential vendor analysis before meeting with any vendor. What are these, why are they important, and how would you use them? ANS: Whether you are a small retailer doing all the buying yourself or a new buyer for a large chain, you should always approach vendors with two important pieces of information: the vendor-profitability analysis statement and the confidential vendor analysis. The vendor-profitability analysis statement provides a record of all the purchases you made last year, the discount granted you by the vendor, transportation charges paid, the original markup, markdowns, and the season-ending gross margin on that vendors merchandise. The confidential vendor analysis lists the same information as the profitability analysis statement but also provides a three-year financial summary as well as the names, titles, and negotiating points of the entire vendors sales staff. This last piece of information is based on notes taken by the buyer during and after buying trips in previous seasons. Based on the information obtained in the previous two re ports, some retailers classify vendors into different categories (called class A, B, C, D, or E vendors) using both performance and brand-positioning information and the retailers opinion on the vendors other attributes. PTS: 1 REF: p. 336-337 OBJ: LO 9-5 11. It is the middle of June and your toy buyer is at the Dallas Toy Show. The buyer sees a new game and is wondering if it will be successful given the makeup of your stores trading area. What questions should the buyer answer before ordering any of these toys? ANS: The buyer should consider these key questions prior to selecting the game for purchase: Where does this product fit into the strategic position that I have staked out for my department? Will I have an exclusive with this product, or will I be in competition with nearby retailers? What is the estimated demand for this product in my target market? What is my anticipated gross margin for this product? Will I be able to obtain reliable, speedy stock replacement? Can this product stand on its own or is it merely a me-too item? What is my expected turnover rate with this product? Does this product complement the rest of my inventory? PTS: 1 REF: p. 339 OBJ: LO 9-6 12. As your boss emerges from the negotiation room at a recent trade show, she tells you that the negoti ations have been successful. What does she mean? ANS: The student should describe a successful negotiation. A successful negotiation is usually accomplished when both parties realize that the other should serve as its partner during the upcoming merchandising season. Both the buyer and the vendor are seeking to satisfy the retailers customers better than the competition. Therefore, buyers and vendors must resolve their conflicts and differences of opinion, re membering that negotiation is a two-way street and that a long-term profitable relationship is the goal. After all, the vendor wants to develop a long-term relationship with the retailer as much as the retailer does with its customers. PTS: 1 REF: p. 339 OBJ: LO 9-6 13. Should a buyer ever buy more product than is needed in order to take advantage of a quantity discount? ANS: The responses would vary according to the requirement of different retailers. A quantity discount is a price reduction offered as an inducement to purchase large quantities of merchandise. Noncumulativequantity discounts can be legally justified by the manufacturer if costs are reduced because of the quantity involved or if the manufacturer is meeting a competitors price in good faith. Cumulative dis counts are more difficult to justify since many small orders may be involved, thereby reducing the manufacturers savings. If a retailer that had already purchased 500 units wanted another 800 units, it would have to pay list price if the vendor uses a noncumulative policy. However, the retailer would receive a 5-percent dis count on all purchases if the vendor uses a cumulative pricing policy. Quantity discounts might not al ways be in the sellers best interest and should always be viewed by the buyer as an invitation for fur ther negotiations. PTS: 1 REF: p. 341 OBJ: LO 9-6 14. You thought that you had purchased the product FOB destination, but when looking at the invoice you notice that you actually agreed to FOB factory. How will this affect your firm? ANS: Free on board factory implies that the buyer assumes title at the factory and pays all transportation costs from the vendors factory. Free on board destination implies that the vendor pays all transporta tion costs, and the buyer takes title on delivery. In this case, since the invoice clearly states FOB fact ory, the firm will incur additional transportation costs from the vendors factory. PTS: 1 REF: p. 343 OBJ: LO 9-6 15. Why is the point at which incoming merchandise received such a high-theft point? ANS: The retailer must have some means of handling incoming merchandise. The point at which incoming merchandise is received can be a high-theft location. The merchandise will need to be moved from the receiving area, where it will be counted and marked, to a storage area, either on the selling floor or in a separate location. However, while doing this, there is a possibility of vendor collusion, employee theft, and customer theft. Under vendor collusion, typical losses involve the delivery of less merchandise than is charged for, removal of good merchandise disguised as old or stale merchandise, and the theft of other merchandise from the stockroom or off the selling floor while making delivery. Considering that stores are usually larger in size, sales volume, and number of employees, the lack of close supervision probably contributes to this problem. Stealing merchandise from the stockroom and receiving area may be easier than taking it from the selling floor for several reasons. Much of the stockroom merchandise is not ticketed, so it is easier to get it through electronic antishoplifting devices. There is very little antitheft security. There is usually an exit in the immediate area of the stockroom through which the thief can carry out the stolen goods. These are some of the reasons why the point at which incoming merchandise received is such a high-theft point. PTS: 1 REF: p. 344-345 OBJ: LO 9-7 16. What should a retailer do to minimize cargo theft? ANS: The retailer needs to consider the following to minimize cargo theft: Eliminate the retailers name from the side of containers carrying the cargo. Install electronic monitoring devices on all shipment vehicles. Carefully screen all internal transportation personnel as well as third-party logistics personnel in each global market. Given the nature of their jobs, these personnel are under loose supervi sion, and higher security standards are therefore critical. Hire security personnel for each shipment. It is much easier for a single person to collude with others than for multiple people to conspire. PTS: 1 REF: p. 347-348 OBJ: LO 9-7
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