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Chapter 9

1) The least flexible element of a retailer's strategy mix is ________.


A) merchandise assortment
B) human resources
C) pricing
D) location
Answer: D
Diff: 1
Page Ref: 250
Skill: Terminology/Concept
2) The first step in choosing a store location is to ________.
A) determine whether to locate as an isolated store, in an unplanned business district, or in a
planned shopping center
B) evaluate alternate geographic (trading areas) in terms of the characteristics of residents and
existing retailers
C) select the general isolated business district or planned shopping-center location
D) analyze alternate sites contained in the specified retail location type
Answer: B
Diff: 1
Page Ref: 251
Skill: Terminology/Concept
3) A trading area can best be defined as ________.
A) those competitive stores that interchange customers
B) stores that are located in the same shopping center or district
C) a geographic area containing customers of a particular firm or group of firms for specific
goods and services
D) a designation of a retail area by the U.S. Census Bureau
Answer: C
Diff: 1
Page Ref: 252
Skill: Terminology/Concept
4) A major benefit of a trading-area analysis is that it allows a retailer to determine ________.
A) the demographic and socioeconomic characteristics of consumers
B) a store's image
C) the psychographics of shoppers versus nonshoppers
D) the response of shoppers to promotional pricing
Answer: A
Diff: 2
Page Ref: 252
Skill: Terminology/Concept

5) A major benefit of a thorough trading-area analysis is that it allows a retailer to ________.


A) increase sales at branch stores with high trading-area overlap
B) better match its target market profile with a medium's circulation
C) increase the degree of trading overlap among branch units
D) better understanding of an area's lifestyles
Answer: B
Diff: 2
Page Ref: 252
Skill: Terminology/Concept
6) The determination of trading-area overlap is most important for ________.
A) regional shopping centers
B) shopping districts
C) chain retailers
D) independent retailers
Answer: C
Diff: 2
Page Ref: 253
Skill: Terminology/Concept
7) A proposed location for a supermarket chain is within three miles of a current store. What is
the major factor that management should study relative to both locations?
A) the trading area of the current location
B) the trading area of the proposed location
C) the trading-area overlap of both locations
D) the demographics of the trading area of each location
Answer: C
Diff: 2
Page Ref: 253
Skill: Terminology/Concept
8) Which technique graphically depicts a trading area's characteristics?
A) geographic mapping
B) geographic information analysis
C) trading-area overlap analysis
D) semantic differential
Answer: B
Diff: 1
Page Ref: 253
Skill: Terminology/Concept
9) Digitized mapping with key locational data are combined with
A) trading area analysis.
B) trading area overlap analysis.
C) geographic information systems.
D) TIGER maps.
Answer: C
Diff: 1
Page Ref: 253
Skill: Terminology/Concept

10) Which statement concerning the U.S. Census Bureau's national digital map, TIGER, is not
correct?
A) TIGER incorporates all streets and highways in the United States.
B) TIGER files are available free-of-charge.
C) TIGER maps include retail facilities and population characteristics.
D) Enhancements to TIGER are available from independent software firms.
Answer: C
Diff: 2
Page Ref: 253
Skill: Terminology/Concept
11) Between 50 and 80 percent of a store's customers come from its ________ trading area.
A) secondary
B) primary
C) fringe
D) tertiary
Answer: B
Diff: 1
Page Ref: 257
Skill: Terminology/Concept
12) The area that has the highest density of store customers to population is the ________ trading
area.
A) secondary
B) primary
C) fringe
D) tertiary
Answer: B
Diff: 1
Page Ref: 257
Skill: Terminology/Concept
13) The trading area with the highest average purchase by a customer is the ________.
A) primary trading area
B) parasite trading area
C) fringe trading area
D) secondary trading area
Answer: A
Diff: 1
Page Ref: 257
Skill: Terminology/Concept
14) A retailer should concentrate the bulk of its promotional activity in its ________.
A) fringe trading area
B) secondary trading area
C) primary trading area
D) satellite trading area
Answer: C
Diff: 2
Page Ref: 257
Skill: Terminology/Concept

15) A retailer's outshoppers come from its ________.


A) fringe trading area
B) secondary trading area
C) primary trading area
D) satellite trading area
Answer: A
Diff: 2
Page Ref: 257
Skill: Terminology/Concept
16) Which trading area covers the greatest distance?
A) fringe trading area
B) secondary trading area
C) primary trading area
D) satellite trading area
Answer: A
Diff: 2
Page Ref: 257
Skill: Terminology/Concept
17) The most widely dispersed group of customers can be found in which trading area segment?
A) trading area overlap
B) primary trading area
C) secondary trading area
D) fringe trading area
Answer: D
Diff: 1
Page Ref: 257
Skill: Terminology/Concept
18) Primary, secondary, and fringe trading areas can be described on the basis of ________.
A) outshopping by consumers
B) the frequency with which people from various geographic localities shop at a particular store
C) customer store loyalty
D) the probability of large orders based upon customer residence
Answer: B
Diff: 2
Page Ref: 257
Skill: Terminology/Concept
19) A store with a wide assortment of merchandise and a strong image in a particular
merchandise category is a ________ store.
A) variety
B) department
C) destination
D) parasite
Answer: C
Diff: 1
Page Ref: 257
Skill: Terminology/Concept

20) A store which does not have a real trading area of its own is a ________ store.
A) fringe
B) parasite
C) destination
D) convenience
Answer: B
Diff: 2
Page Ref: 258
Skill: Terminology/Concept
21) A newspaper stand in a hotel lobby can best be described as a ________ store.
A) fringe
B) parasite
C) destination
D) convenience
Answer: B
Diff: 2
Page Ref: 258
Skill: Terminology/Concept
22) In a regional shopping center, the store with the largest trading area is the ________ store.
A) department
B) variety
C) supermarket
D) gift
Answer: A
Diff: 1
Page Ref: 259
Skill: Terminology/Concept
23) Which computer-based system classifies and describes communities by ZIP code, as well as
census tracts?
A) American Community Survey
B) Editor & Publisher Market Guide
C) Nielsen Researcher
D) Claritas Corporation's PRIZM NE
Answer: D
Diff: 1
Page Ref: 260
Skill: Terminology/Concept
24) The simplest and most popular form of computerized site selection model is ________.
A) corner influence
B) gravity
C) regression
D) analog
Answer: D
Diff: 1
Page Ref: 261
Skill: Terminology/Concept

25) The regression computer site selection model ________.


A) utilizes a series of mathematical equations
B) evaluates store distance and image
C) analyzes competition, market share, and market size
D) studies population and driving distance
Answer: A
Diff: 1
Page Ref: 261
Skill: Terminology/Concept
26) In Reilly's law of retail gravitation, the point of indifference is the ________.
A) customer's perceived similarity between two competing retailers
B) geographic breaking point area at which shoppers are indifferent to shopping at either of two
cities
C) limit of a city's trading area in estimated driving time
D) limit of a city's primary trading area in driving distance
Answer: B
Diff: 1
Page Ref: 261-262
Skill: Terminology/Concept
27) The major assumptions of Reilly's law are that two competing areas are equally accessible
from a major road and that ________.
A) each city has an equal population
B) each city is equally distant from shoppers at the point of indifference
C) merchants in the two cities are equally effective
D) consumers are willing to travel for lower prices
Answer: C
Diff: 1
Page Ref: 261-262
Skill: Terminology/Concept
28) Huff improved Reilly's law by adding which variable to the estimation of trading areas?
A) economic barriers
B) the effect of travel time on different kinds of shopping trips
C) median disposable income in each city
D) the existence of primary, secondary, and fringe trading areas
Answer: B
Diff: 2
Page Ref: 262
Skill: Terminology/Concept

29) A major advantage of the Census of Population for use by retailers in trading-area analysis is
________.
A) its currency
B) its five-year projections of key economic data
C) the availability of retail sales data by merchandise classification
D) the availability of information on small geographic units
Answer: D
Diff: 2
Page Ref: 266
Skill: Terminology/Concept
30) An important advantage to the use of American Community Survey data in trading-area
analysis is its ________.
A) availability on the Web
B) annually updated data
C) computation of economic base characteristics
D) small size of census blocks and tracks
Answer: B
Diff: 2
Page Ref: 269
Skill: Terminology/Concept
31) An area's commercial and industrial structure is referred to as its ________.
A) lambda coefficient
B) economic base
C) trading area
D) industrial diversification base
Answer: B
Diff: 1
Page Ref: 271
Skill: Terminology/Concept
32) What type of economic base is preferred by most retailers?
A) upper-income economic base
B) service-oriented economic base
C) single-industry economic base
D) diversified economic base
Answer: D
Diff: 2
Page Ref: 271
Skill: Terminology/Concept
33) Data on an area's economic base are available from ________.
A) American Community Survey
B) Editor & Publisher Market Guide
C) Census of Population
D) Census of Retail Trade
Answer: B
Diff: 1
Page Ref: 234
Skill: Terminology/Concept

34) A retailer with a higher than average profitability is most likely to have which level of
saturation?
A) overstored
B) understored
C) oversaturated
D) saturated
Answer: B
Diff: 2
Page Ref: 271
Skill: Terminology/Concept
35) An area which has the proper amount of stores to satisfy the needs of its population for a
specific good or service is a(n) ________ trading area.
A) saturated
B) supersaturated
C) overstored
D) understored
Answer: A
Diff: 1
Page Ref: 271
Skill: Terminology/Concept
36) A retailer's location strategy can be made more flexible through ________.
A) sale and leaseback arrangements with financial institutions
B) ownership versus long-term leasing
C) the use of short-term leases with multiple renewal options versus a long-term lease
D) the use of a maintenance-increase-recoupment provision
Answer: C
Diff: 2
Page Ref: 251
Skill: Applied/Comprehensive/Integrative
37) Which type of customers are generally not studied in a trading-area analysis?
A) direct-selling customers
B) fringe trading area customers
C) branch customers of retail chains
D) outshoppers
Answer: A
Diff: 2
Page Ref: 252
Skill: Applied/Comprehensive/Integrative

38) A retailer with three retail stores located within a 10-mile radius wishes to advertise in a
county-based daily newspaper which covers a very large geographic area. The retailer should
________.
A) use small ads to minimize waste
B) use horizontal cooperative advertising to reduce waste
C) use a regional edition to minimize waste
D) seek to reduce the trading-area overlap to minimize waste with this medium
Answer: C
Diff: 2
Page Ref: 253
Skill: Applied/Comprehensive/Integrative
39) High trading-area overlap is preferable for a retailer that seeks to ________.
A) receive high incremental sales from new store units
B) saturate a geographic area and keep out potential new retailers
C) appeal to niche markets
D) become a destination store
Answer: B
Diff: 2
Page Ref: 252, 253
Skill: Applied/Comprehensive/Integrative
40) Under what condition would it be rational for the trading areas of two branch locations to
completely overlap?
A) when each store has the same target market
B) when the retailer desires cost economics in promotion
C) when a retailer pursues a mass marketing strategy
D) when the retailer decides to switch store locations due to loss of a lease on the first store
location
Answer: D
Diff: 2
Page Ref: 252, 253
Skill: Applied/Comprehensive/Integrative
41) Which software products enable retailers to graphically evaluate the characteristics of
alternate locations?
A) data warehousing
B) data mining
C) geographic information systems
D) geographic mapping
Answer: C
Diff: 1
Page Ref: 253
Skill: Applied/Comprehensive/Integrative

42) The most important trading area to a retailer is the ________.


A) primary trading area
B) secondary trading area
C) fringe trading area
D) parasite area overlap
Answer: A
Diff: 2
Page Ref: 257
Skill: Applied/Comprehensive/Integrative
43) A retailer's core shoppers come from which trading area?
A) secondary trading area
B) primary trading area
C) parasite trading area
D) fringe trading area
Answer: A
Diff: 2
Page Ref: 257
Skill: Applied/Comprehensive/Integrative
44) Loyal customers who shop at a store despite very long travel requirements constitute the
store's ________.
A) trading-area overlap
B) primary trading area
C) secondary trading area
D) fringe trading area
Answer: D
Diff: 2
Page Ref: 257
Skill: Applied/Comprehensive/Integrative
45) A store has a disproportionately large primary, secondary, and fringe trading area. This
situation can be caused by ________.
A) a high level of prices
B) its being a destination store
C) physical barriers
D) high competition in each trading area
Answer: B
Diff: 2
Page Ref: 257
Skill: Applied/Comprehensive/Integrative
46) What type of retailer has a very large primary trading area?
A) impulse retailer
B) convenience retailer
C) destination retailer
D) parasite store
Answer: C
Diff: 2
Page Ref: 257
Skill: Applied/Comprehensive/Integrative

10

47) Which of the following retailers is most likely to be a parasite in a major shopping center?
A) coffee shop
B) electronic repair facility
C) department store
D) clothing specialty retailer
Answer: A
Diff: 2
Page Ref: 258
Skill: Applied/Comprehensive/Integrative
48) Which statement about the trading area of a parasite store in a regional shopping center is
correct?
A) A parasite store has its own unique trading area.
B) The trading area of the parasite store approximates that of the shopping center.
C) The parasite store has a larger trading area than the center's department store.
D) The parasite store is a destination store.
Answer: B
Diff: 2
Page Ref: 258
Skill: Applied/Comprehensive/Integrative
49) "A grouping of stores may actually increase the trading area for each store." This statement
especially applies to ________.
A) convenience products
B) emergency products
C) impulse products
D) shopping products
Answer: D
Diff: 2
Page Ref: 259
Skill: Applied/Comprehensive/Integrative
50) A supermarket has developed a model to aid in its site selection process. The model contains
variables such as trading area population in the primary trading area and expected market share.
This illustrates a(n) ________ model.
A) regression
B) historical analogy
C) gravity
D) analog
Answer: D
Diff: 2
Page Ref: 261
Skill: Applied/Comprehensive/Integrative

11

51) A department store uses a(n) ________ computer site selection model. This model contains a
series of equations linking variables such as traffic patterns, population size, average income, and
transportation adequacy to estimated sales.
A) regression
B) analog
C) gravity
D) historical analogy
Answer: A
Diff: 2
Page Ref: 261
Skill: Applied/Comprehensive/Integrative
52) Which computer-based site selection model generally allows a researcher to study the effect
of one of several variables on expected sales?
A) analog
B) gravity
C) regression
D) interactive
Answer: C
Diff: 1
Page Ref: 261
Skill: Applied/Comprehensive/Integrative
53) Reilly's law is an example of a(n) ________ computer site selection model.
A) regression
B) analog
C) gravity
D) historical analogy
Answer: A
Diff: 2
Page Ref: 261
Skill: Applied/Comprehensive/Integrative
54) Huff's law is an example of a(n) ________ computer site selection model.
A) regression
B) analog
C) gravity
D) historical analogy
Answer: C
Diff: 2
Page Ref: 261
Skill: Applied/Comprehensive/Integrative

12

55) The distance between city A and city B is 30 miles; city A's population is 1,000,000 and city
B's is 16,000,000. The point of indifference between the two cities is ________.
A) 6 miles from A, 24 miles from B
B) 12 miles from A, 18 miles from B
C) 18 miles from A, 12 miles from B
D) 24 miles from A, 6 miles from B
Answer: A
Diff: 2
Page Ref: 261
Skill: Applied/Comprehensive/Integrative
56) Based on Reilly's law, a city with a population of 90,000 would draw people from about how
many times the distance as a city with 10,000 population?
A) 1.5 times
B) 2 times
C) 3 times
D) 4 times
Answer: C
Diff: 2
Page Ref: 261
Skill: Applied/Comprehensive/Integrative
57) Based on Reilly's law, two cities have populations of 1,000,000 and 25,000,000. The point of
indifference is 10 miles from the larger city. What is the total distance between the two cities?
A) 40 miles
B) 45 miles
C) 50 miles
D) 60 miles
Answer: D
Diff: 2
Page Ref: 261
Skill: Applied/Comprehensive/Integrative
58) Based on Reilly's law, two cities that have equal populations are 100 miles apart. The point
of indifference ________.
A) is 10 miles from the first city
B) is 15 miles from the first city
C) is midway between each city
D) cannot be determined from the information provided
Answer: C
Diff: 2
Page Ref: 261
Skill: Applied/Comprehensive/Integrative

13

59) The point of indifference between two cities or communities in Reilly's law most closely
corresponds to ________.
A) Huff's law based on 50 percent probability of consumer shopping
B) a 50 percent index of retail saturation
C) a saturated retail trading area
D) a 0.50 economic base index for an area
Answer: A
Diff: 2
Page Ref: 261-262
Skill: Applied/Comprehensive/Integrative
60) Assume that there are three shopping locations with 500, 1,000, and 3,000 square feet of
space allocated to outdoor lighting fixtures. A group of potential customers lives 5 minutes from
the first location, 10 minutes from the second location, and 15 minutes from the third location.
The retailer estimates the effect of travel time to be 1. The probability of consumers' shopping at
location one is ________.
A) 10 percent
B) 15 percent
C) 25 percent
D) 33 percent
Answer: C
Diff: 2
Page Ref: 262
Skill: Applied/Comprehensive/Integrative
61) Assume that there are three shopping locations with 500, 1,000, and 3,000 square feet of
space allocated to outdoor lighting fixtures. A group of potential customers lives 5 minutes from
the first location, 10 minutes from the second location, and 15 minutes from the third location.
The retailer estimates the effect of travel time to be 1. The probability of consumers' shopping at
location two is ________.
A) 10 percent
B) 15 percent
C) 25 percent
D) 33 percent
Answer: C
Diff: 2
Page Ref: 262
Skill: Applied/Comprehensive/Integrative

14

62) Assume that there are three shopping locations with 500, 1,000, and 3,000 square feet of
space allocated to outdoor lighting fixtures. A group of potential customers lives 5 minutes from
the first location, 10 minutes from the second location, and 15 minutes from the third location.
The retailer estimates the effect of travel time to be 2. The probability of consumers' shopping at
location two is ________.
A) 7 percent
B) 10 percent
C) 15 percent
D) 23 percent
Answer: D
Diff: 2
Page Ref: 262
Skill: Applied/Comprehensive/Integrative
63) A major refinement in Huff's law versus Reilly's law is Huff's use of ________.
A) mileage versus driving time estimates
B) a point of indifference between two areas
C) actual population figures versus population estimates
D) separate trading-area calculations for different product categories
Answer: D
Diff: 2
Page Ref: 262
Skill: Applied/Comprehensive/Integrative
64) Blocks and census tracts are important units in the Census of Population to retailers because
________.
A) online computer tapes are available
B) these can be combined to fit a retailer's trading area
C) these blocks and tracks contain important data on retail sales by location
D) these blocks and tracks contain forecasts on population changes over a 5-year period
Answer: B
Diff: 1
Page Ref: 267
Skill: Applied/Comprehensive/Integrative
65) A retailer seeking to study the population characteristics of residents within its primary
trading area (a 2-mile radius around its store) should utilize ________.
A) American Demographics
B) Editor & Publisher Market Guide
C) American Community Survey
D) the Census of Population
Answer: D
Diff: 1
Page Ref: 267
Skill: Applied/Comprehensive/Integrative

15

66) The optimal economic base for a department store chain is ________.
A) retired persons
B) military personnel
C) diversified
D) based on one industry
Answer: C
Diff: 2
Page Ref: 271
Skill: Applied/Comprehensive/Integrative
67) A retailer seeking a stable economic environment should seek a trading area with a
________.
A) large retired population
B) diversified economic base
C) large government facility
D) booming economy
Answer: B
Diff: 1
Page Ref: 271
Skill: Applied/Comprehensive/Integrative
68) An area with a relatively large number of consumers per square foot of available store space
is ________.
A) understored
B) overstored
C) saturated
D) oversaturated
Answer: A
Diff: 1
Page Ref: 271
Skill: Applied/Comprehensive/Integrative
69) The trading area overlap between two shoe stores of the same chain is significant. What
conclusion can we make about the level of saturation in this geographic area?
A) It is overstored
B) It is understored
C) It is saturated
D) Both stores are parasite stores
Answer: A
Diff: 2
Page Ref: 271, 253
Skill: Applied/Comprehensive/Integrative

16

70) Areas A, B, and C have similar demographic profiles. The sales per square foot for A, B, and
C are $350, $500, and $600, respectively. On the basis of this data, area C is ________.
A) understored
B) overstored
C) saturated
D) in equilibrium
Answer: A
Diff: 2
Page Ref: 271-272
Skill: Applied/Comprehensive/Integrative
71) Leases in good shopping center locations are generally for 5 years or less.
Answer: FALSE
Diff: 1
Page Ref: 251
Skill: Terminology/Concept
72) The first step in choosing a store location is to select the general isolated store, unplanned
business district, or planned shopping center location.
Answer: FALSE
Diff: 1
Page Ref: 251
Skill: Terminology/Concept
73) Trading overlap analysis is particularly important for retail chains and franchises.
Answer: TRUE
Diff: 2
Page Ref: 253
Skill: Terminology/Concept
74) Trading-area analysis is useful in determining waste in specific media.
Answer: TRUE
Diff: 1
Page Ref: 253
Skill: Terminology/Concept
75) The secondary trading area has the highest density of customers to population.
Answer: FALSE
Diff: 1
Page Ref: 257
Skill: Terminology/Concept
76) Two shoe stores can have different trading areas even though they are located within three
stores of each other in the same shopping center.
Answer: TRUE
Diff: 2
Page Ref: 257
Skill: Terminology/Concept
77) The trading area of a parasite store located within a shopping center closely approximates the
trading area of the overall shopping center.
Answer: TRUE
Diff: 2
Page Ref: 257, 258
Skill: Terminology/Concept
17

78) If the use of credit cards varies among different geographic areas, a determination of trading
areas on the basis of credit card analysis will not accurately reflect a store's trading area.
Answer: TRUE
Diff: 2
Page Ref: 260
Skill: Terminology/Concept
79) An analysis of a store's customers reveals that area A has twice the concentration of
customers as area B. Area C has one-quarter the customers of area A. Area A represents the
store's primary trading area.
Answer: TRUE
Diff: 2
Page Ref: 260, 257
Skill: Terminology/Concept
80) The simplest computerized site selection model is the gravity model.
Answer: FALSE
Diff: 1
Page Ref: 261
Skill: Terminology/Concept
81) Reilly's law of retail gravitation assumes that trading areas will vary depending on the good
or service sought by a retail customer.
Answer: FALSE
Diff: 1
Page Ref: 261
Skill: Terminology/Concept
82) The point of indifference is a critical statistic in a gravity model.
Answer: TRUE
Diff: 2
Page Ref: 261
Skill: Terminology/Concept
83) The American Community Survey is updated yearly.
Answer: TRUE
Diff: 1
Page Ref: 269
Skill: Terminology/Concept
84) In general, retailers prefer an area to have a diversified (as opposed to a specialized)
economic base.
Answer: TRUE
Diff: 2
Page Ref: 271
Skill: Terminology/Concept
85) Each retailer is able to earn an adequate return on his/her investment when an area is
overstored.
Answer: FALSE
Diff: 1
Page Ref: 271
Skill: Terminology/Concept

18

86) Store location is generally considered the least flexible element in a retailer's strategy mix.
Answer: TRUE
Diff: 1
Page Ref: 216
Skill: Applied/Comprehensive/Integrative
87) A destination store has a large fringe trading area.
Answer: TRUE
Diff: 2
Page Ref: 220, 222
Skill: Applied/Comprehensive/Integrative
88) A store with a large fringe trading area has a small percent of outshoppers.
Answer: FALSE
Diff: 2
Page Ref: 220
Skill: Applied/Comprehensive/Integrative
89) Parasite stores do not have to delineate their trading area. They can use the trading-area
analysis of other retailers in the same shopping district or shopping center.
Answer: TRUE
Diff: 2
Page Ref: 258, 259
Skill: Applied/Comprehensive/Integrative
90) Trading-area delineation is more precise for existing retail store locations than for new retail
store locations.
Answer: TRUE
Diff: 2
Page Ref: 259-261
Skill: Applied/Comprehensive/Integrative
91) PRIZM NE describes a geographic area via lifestyle market segments.
Answer: TRUE
Diff: 1
Page Ref: 260)
Skill: Applied/Comprehensive/Integrative
92) A regression model is a form of simulation.
Answer: TRUE
Diff: 1
Page Ref: 261
Skill: Applied/Comprehensive/Integrative
93) Reilly's law of retail gravitation and Huff's law are examples of analog models.
Answer: FALSE
Diff: 2
Page Ref: 261
Skill: Applied/Comprehensive/Integrative
94) City A is nine times greater in population than city B. If the cities are 30 miles apart, the
point of indifference is 22.5 miles from city A and 7.5 miles from city B, based on Reilly's law.
Answer: TRUE
Diff: 2
Page Ref: 261
Skill: Applied/Comprehensive/Integrative
19

95) Huff's law of shopper attraction uses less sophisticated assumptions about consumer behavior
than Reilly's law of retail gravitation.
Answer: FALSE
Diff: 2
Page Ref: 261-262
Skill: Applied/Comprehensive/Integrative
96) Three shopping locations devote 500, 1,000, and 2,000 square feet to bathroom vanities. A
group of potential customers live 5 minutes from the first location, 10 minutes from the second,
and 20 minutes from the third. A luggage retailer estimates the effect of travel time to be 2. The
probability of consumers shopping at location one is 57 percent.
Answer: TRUE
Diff: 2
Page Ref: 262
Skill: Applied/Comprehensive/Integrative
97) In comparison to the American Community Survey, the major advantage of the Census of
Population is its currency.
Answer: FALSE
Diff: 2
Page Ref: 263, 266-267
Skill: Applied/Comprehensive/Integrative
98) A diversified economic base protects retailers from risks inherent in a single-industry town.
Answer: TRUE
Diff: 1
Page Ref: 271
Skill: Applied/Comprehensive/Integrative
99) Data on the economic base of an area can be found in the American Community Survey.
Answer: FALSE
Diff: 2
Page Ref: 271
Skill: Applied/Comprehensive/Integrative
100) Sales per square foot for shoes for area A are $150; the comparable measure for neighboring
area B is $95. The population of both areas is similar in terms of demographics and life-styles.
Area A is understored relative to area B.
Answer: FALSE
Diff: 2
Page Ref: 271
Skill: Applied/Comprehensive/Integrative
101) a.
Why is retail location the least flexible element of a retailer's strategy?
b. Is this an advantage or a disadvantage to a retailer? Explain your answer.
Diff: 2
Page Ref: 25
102) a.
How can a retailer make its location strategy more flexible?
b. Identify the risks associated with these strategies.
Diff: 2
Page Ref: 251

20

103) Under what conditions should a retailer have high trading-area overlap among its branches?
Explain your answer.
Diff: 2
Page Ref: 252, 253
104) a.
Differentiate among a primary, secondary, and fringe trading area.
b. What are the benefits of having a large fringe trading area? ...the limitations?
Diff: 1
Page Ref: 257
105) a.
Which trading area (primary, secondary, or fringe) is most important for a
destination store? Explain.
b. Is trading area analysis relevant to a direct marketer? Explain your answer.
Diff: 2
Page Ref: 257
106) a.
Explain how an existing appliance retailer can delineate its trading area using
primary data.
b. Explain how an existing appliance retailer can delineate its trading area using secondary data.
Diff: 1
Page Ref: 259-263
107) Differentiate among the three types of computer site selection models: analog, regression,
and gravity.
Diff: 1
Page Ref: 261
108) a.
Using Reilly's law, compute the point of indifference when the population of city
A equals 10,000, the population of city B equals 90,000, and the distance between A and B
equals 30 miles.
b. Three shopping locations have 1,000, 1,500, and 3,000 square feet of space devoted to
personal computer books. A group of potential customers live 7 minutes from the first location,
10 minutes from the second location, and 15 minutes from the third location. A retailer estimates
the effect of travel time to be 2. Compute the probability of consumers shopping at each location
using Huff's law.
Diff: 2
Page Ref: 261, 262
109) How can Reilly's law and Huff's law be improved (in terms of introducing additional
factors) so as to better delineate trading areas for new retailers?
Diff: 1
Page Ref: 261, 262
110) What kind of data on population characteristics can a retailer obtain from the Census of
Population? ...American Community Survey? ...Editor & Publisher Market Guide?
Diff: 1
Page Ref: 266, 269, 271
111) a.
Develop a statement describing an optimal economic base for a major ladies'
clothing specialty store seeking an aggressive expansion strategy.
b. Is the study of an area's economic base still important when 15 percent of an area's population
is tourists on vacation? Explain.
Diff: 2
Page Ref: 271

21

112) a.
Explain how a supermarket retailer can estimate the degree of market saturation
for a given location. Refer to specific measures of trading-area saturation.
b. Why have most studies of retail saturation been conducted on supermarkets? Explain your
answer.
Diff: 2
Page Ref: 271-272

22

Chapter 10
1) Which location type is generally characterized by the absence of retailers with which the
retailer can share traffic?
A) business district
B) shopping center
C) isolated store
D) strip
Answer: C
Diff: 1
Page Ref: 276
Skill: Terminology/Concept
2) A major advantage of an isolated store location is that ________.
A) there are no group rules which must be abided by in operation
B) parking and security costs can be shared with other tenants
C) shoppers can be easily attracted and maintained at the location
D) advertising costs are generally low
Answer: A
Diff: 1
Page Ref: 276
Skill: Terminology/Concept
3) A major disadvantage to an isolated store location is that ________.
A) competition with adjacent retailers is high
B) on an ongoing basis, many people will not travel very far to shop in just one store
C) rental costs are generally relatively high
D) leases can restrict store operations and merchandise carried
Answer: B
Diff: 1
Page Ref: 276
Skill: Terminology/Concept
4) A shopping area in a city or town that is the hub of retailing in a city the term and is
synonymous with the term "downtown" is the ________ business district.
A) unplanned
B) neighborhood
C) central
D) secondary
Answer: C
Diff: 1
Page Ref: 277
Skill: Terminology/Concept

23

5) Which business district is located in the part of a city or town with the greatest concentration
of office buildings and retail stores?
A) string
B) central business district
C) neighborhood business district
D) secondary business district
Answer: B
Diff: 1
Page Ref: 277
Skill: Terminology/Concept
6) Which statement concerning the central business district (CBD) is not correct?
A) The core of a CBD rarely exceeds a square mile.
B) A CBD is typically located in the part of a city or town with the greatest concentration of
office buildings and retail stores.
C) Over the past 40 years, the share of the CBD relative to the planned shopping center has
increased.
D) A CBD has at least one major department store and a broad grouping of specialty and
convenience stores.
Answer: C
Diff: 2
Page Ref: 277-278
Skill: Terminology/Concept
7) A central business district is characterized by a concentration of ________.
A) convenience stores
B) suburban housing
C) parking facilities
D) cultural and entertainment facilities
Answer: D
Diff: 1
Page Ref: 277
Skill: Terminology/Concept
8) Which unplanned shopping district has at least one department store and a number of specialty
and convenience stores?
A) string
B) central business district
C) secondary business district
D) regional shopping center
Answer: B
Diff: 1
Page Ref: 277-278
Skill: Terminology/Concept

24

9) A major advantage of a central business district is ________.


A) access to public transportation
B) balanced tenancy
C) ease of vehicular traffic flow
D) continuity of merchandise offerings
Answer: A
Diff: 1
Page Ref: 277-278
Skill: Terminology/Concept
10) Which unplanned business district is generally bounded by the intersection of two major
streets?
A) isolated store
B) string
C) secondary business district
D) central business district
Answer: C
Diff: 1
Page Ref: 279-280
Skill: Terminology/Concept
11) A secondary business district generally is comprised of a minimum of ________.
A) a supermarket and several service stores (such as a bakery, dry cleaner, and laundromat)
B) one department store and a group of specialty and convenience stores
C) a grouping of stores with similar merchandise lines
D) a junior department store and some larger specialty stores
Answer: D
Diff: 1
Page Ref: 279-280
Skill: Terminology/Concept
12) Which of the following location forms is not planned as a unit?
A) neighborhood business district
B) neighborhood shopping center
C) community shopping center
D) regional shopping center
Answer: A
Diff: 1
Page Ref: 280
Skill: Terminology/Concept
13) Which shopping location appeals to a single residential area?
A) secondary business district
B) neighborhood business district
C) regional shopping center
D) central business district
Answer: B
Diff: 2
Page Ref: 280
Skill: Terminology/Concept

25

14) A neighborhood business district generally is comprised of a minimum of ________.


A) several service stores (such as a dry cleaner and restaurant)
B) one department store and a group of specialty and convenience stores
C) a grouping of stores with similar merchandise lines
D) a junior department store, variety store, and several service shops
Answer: A
Diff: 1
Page Ref: 280
Skill: Terminology/Concept
15) A string is composed of ________.
A) a supermarket and several service stores (such as a bakery, dry cleaner, and laundromat)
B) one department store and a group of specialty and convenience stores
C) a grouping of stores with similar or compatible product lines
D) a junior department store, variety store, and several service shops
Answer: C
Diff: 1
Page Ref: 280
Skill: Terminology/Concept
16) Planned shopping centers are characterized by ________.
A) low rental costs
B) central ownership and management and balanced tenancy
C) no adjacent retailers
D) a high concentration of office buildings and retail stores
Answer: B
Diff: 2
Page Ref: 280-281
Skill: Terminology/Concept
17) To ensure ________, limits are typically placed on the product lines that can be stocked by
each retailer and the types of retailers that can acquire unexpired leases.
A) scrambled merchandising
B) balanced tenancy
C) a one-hundred percent location
D) sale-leaseback
Answer: B
Diff: 2
Page Ref: 280
Skill: Terminology/Concept
18) A major advantage of a planned shopping center to a retailer is ________.
A) nearness to commercial and social facilities
B) ability to cater to convenience needs of a local population
C) interest in one-stop, family shopping
D) the domination by large anchor stores
Answer: C
Diff: 1
Page Ref: 280-281
Skill: Terminology/Concept

26

19) Which planned shopping center type has a trading area of up to 30 minutes driving time?
A) megamall
B) regional shopping center
C) community shopping center
D) neighborhood shopping center
Answer: B
Diff: 1
Page Ref: 283-284
Skill: Terminology/Concept
20) The largest form of planned shopping center is the ________.
A) megamall
B) neighborhood shopping center
C) community shopping center
D) regional shopping center
Answer: A
Diff: 1
Page Ref: 284
Skill: Terminology/Concept
21) The least common form of planned shopping center is the ________.
A) neighborhood shopping center
B) community shopping center
C) megamall
D) string
Answer: C
Diff: 2
Page Ref: 284
Skill: Terminology/Concept
22) Which planned shopping center has a moderate assortment of both shopping and
convenience-oriented goods and services?
A) community shopping center
B) regional shopping center
C) neighborhood shopping center
D) megamall
Answer: A
Diff: 1
Page Ref: 284-285
Skill: Terminology/Concept
23) A power center is a form of ________.
A) string
B) megamall
C) regional shopping center
D) community shopping center
Answer: D
Diff: 2
Page Ref: 285
Skill: Terminology/Concept

27

24) Which type of shopping center is comprised of category killer stores?


A) power center
B) regional shopping center
C) megamall
D) string
Answer: A
Diff: 1
Page Ref: 285
Skill: Terminology/Concept
25) Which planned shopping center emphasizes convenience-oriented goods and services (such
as a bakery, laundry, and a dry cleaner)?
A) neighborhood shopping center
B) community shopping center
C) regional shopping center
D) megamall
Answer: A
Diff: 2
Page Ref: 285-286
Skill: Terminology/Concept
26) Which planned shopping center is generally arranged in a strip?
A) regional shopping center
B) community shopping center
C) neighborhood shopping center
D) megamall
Answer: C
Diff: 1
Page Ref: 285-286
Skill: Terminology/Concept
27) A one-hundred percent location is the ________.
A) optimum site for a particular store
B) location with the best lease terms
C) location closest to parking facilities
D) location with the best affinities
Answer: A
Diff: 1
Page Ref: 287
Skill: Terminology/Concept
28) The most crucial locational attribute is generally ________.
A) corner influence
B) transportation facilities
C) parking facilities
D) pedestrian traffic
Answer: D
Diff: 2
Page Ref: 287
Skill: Terminology/Concept

28

29) The quality of pedestrian traffic counts can be improved by ________.


A) separating the count by time of day and day of week
B) counting all people passing a given location
C) counting only people who park their car in the lot
D) allowing the interviewer to determine who is to be counted
Answer: A
Diff: 2
Page Ref: 288
Skill: Terminology/Concept
30) Stores that have similar and/or complementary merchandise offerings have ________.
A) retail balance
B) balanced tenancy
C) high affinities
D) corner influence
Answer: C
Diff: 1
Page Ref: 290
Skill: Terminology/Concept
31) In retail balance, ________.
A) there is a shortage of a given type of retail facility
B) the level of customer interchange among complementary stores is high
C) parking facilities are appropriate to demand
D) store facilities for each merchandise or service classification are equal to the location's market
potential
Answer: D
Diff: 1
Page Ref: 291
Skill: Terminology/Concept
32) A retailer's owning a store location (as opposed to leasing) is most common with ________.
A) inexpensive locations
B) locations in regional shopping centers
C) larger retail institutions
D) department stores
Answer: A
Diff: 1
Page Ref: 292
Skill: Terminology/Concept
33) A major advantage to leasing (versus store ownership) is ________.
A) ability to depreciate a building
B) lower property taxes
C) freedom from lease renewal concerns
D) ability to secure regional shopping center locations
Answer: D
Diff: 2
Page Ref: 292
Skill: Terminology/Concept

29

34) A retailer can view a lease as a variable cost in a ________.


A) graduated lease
B) percentage lease
C) straight lease
D) net lease
Answer: B
Diff: 2
Page Ref: 293
Skill: Terminology/Concept
35) Which expense is paid by the property owner in a net lease?
A) heat
B) insurance
C) electricity
D) mortgage interest
Answer: D
Diff: 2
Page Ref: 294
Skill: Terminology/Concept
36) An isolated store location is most suitable to a retailer that ________.
A) is a parasite
B) is a category killer
C) requires affinities
D) uses a multiple segmentation strategy
Answer: B
Diff: 2
Page Ref: 276-277
Skill: Applied/Comprehensive/Integrative
37) What type of location is least appropriate for a parasite store?
A) central business district
B) regional shopping center
C) isolated store
D) string
Answer: C
Diff: 2
Page Ref: 276-277
Skill: Applied/Comprehensive/Integrative
38) The major difference between unplanned business districts and planned shopping centers is
based upon ________.
A) composition of stores
B) ownership
C) size in square footage
D) shopper demographics
Answer: B
Diff: 2
Page Ref: 277, 280
Skill: Applied/Comprehensive/Integrative

30

39) Which planned shopping center is most similar to the central business district?
A) community shopping center
B) neighborhood shopping center
C) regional shopping center
D) string
Answer: C
Diff: 2
Page Ref: 277, 283
Skill: Applied/Comprehensive/Integrative
40) While a small or medium-sized city typically has ________ central business district(s), it
usually has ________ secondary business district(s).
A) one; multiple
B) multiple; one
C) one; two
D) two; three
Answer: A
Diff: 2
Page Ref: 277, 279
Skill: Applied/Comprehensive/Integrative
41) A major difference between a central business district (CBD) and a regional shopping center
is the existence of ________ in the CBD.
A) a major concentration of office buildings
B) free parking
C) merchants associations
D) vertical malls
Answer: A
Diff: 2
Page Ref: 277, 283-284
Skill: Applied/Comprehensive/Integrative
42) The retail location types with the largest primary trading areas are ________.
A) regional shopping center and central business district
B) neighborhood business district and neighborhood shopping center
C) secondary business district and neighborhood shopping center
D) megamall and power center
Answer: A
Diff: 2
Page Ref: 277, 283-284
Skill: Applied/Comprehensive/Integrative
43) In a string location, a retailer has affinities with ________.
A) compatible retailers
B) retailers selling the same product lines
C) a parasite store
D) a planned shopping center
Answer: B
Diff: 2
Page Ref: 280
Skill: Applied/Comprehensive/Integrative

31

44) "While competition among similar stores can increase the size of a trading area for all
merchants, it can result in each merchant receiving a smaller market share." This statement is
most applicable to a(n) ________.
A) isolated location
B) category killer retailer
C) department store
D) string
Answer: D
Diff: 2
Page Ref: 280
Skill: Applied/Comprehensive/Integrative
45) A string location is most appropriate for ________.
A) a chain retailer
B) a destination store
C) retailers that sell shopping goods
D) a category killer
Answer: C
Diff: 2
Page Ref: 280
Skill: Applied/Comprehensive/Integrative
46) A retail area with balanced tenancy is a(n) ________.
A) understored area for all merchandise classifications
B) overstored area for all merchandise classifications
C) saturated area for all merchandise classifications
D) saturated area for selected merchandise classifications
Answer: C
Diff: 2
Page Ref: 280
Skill: Applied/Comprehensive/Integrative
47) A balanced tenancy (wherein a store's merchandise lines are limited and controlled) may be
incompatible with which retail strategy?
A) the wheel of retailing
B) the retail life cycle
C) scrambled merchandising
D) discounting
Answer: C
Diff: 2
Page Ref: 280
Skill: Applied/Comprehensive/Integrative

32

48) When a central business district closes a street to vehicular traffic as part of a renovation
project, it plans to simulate a(n) ________ mall.
A) open
B) closed
C) discount
D) enclosed
Answer: A
Diff: 2
Page Ref: 278, 281
Skill: Applied/Comprehensive/Integrative
49) A megamall is a form of a ________.
A) central business district
B) string
C) community shopping center
D) regional shopping center
Answer: D
Diff: 2
Page Ref: 284
Skill: Applied/Comprehensive/Integrative
50) Which retail location type would generally have the largest overall trading area?
A) megamall
B) power center
C) regional shopping center
D) community business district
Answer: A
Diff: 2
Page Ref: 284
Skill: Applied/Comprehensive/Integrative
51) Generally, which tenant in a community shopping center has the largest primary trading
area?
A) convenience store
B) pharmacy
C) supermarket
D) variety store
Answer: D
Diff: 2
Page Ref: 284-285
Skill: Applied/Comprehensive/Integrative
52) Which type of retail location has two or more destination stores?
A) isolated location
B) power center
C) megamall
D) string
Answer: B
Diff: 2
Page Ref: 285
Skill: Applied/Comprehensive/Integrative

33

53) A one-hundred percent location for an off-price retail chain is a(n) ________.
A) isolated location
B) corner store location in a regional shopping center
C) location adjacent to a department store in a megamall
D) location adjacent to a used car lot in a string
Answer: A
Diff: 2
Page Ref: 287
Skill: Applied/Comprehensive/Integrative
54) Which location and site evaluation aspects can best be monitored by observation?
A) transportation quality as judged by consumers
B) pedestrian and vehicular traffic
C) parking adequacy perceptions
D) retail balance
Answer: B
Diff: 2
Page Ref: 287, 288
Skill: Applied/Comprehensive/Integrative
55) In conducting a vehicular traffic count for a car wash, the service retailer should be careful to
discount the number of vehicles that ________.
A) are going slower than 35 miles per hour
B) must cross a two-lane divided highway to enter the retailer's facility
C) have out-of-state license plates
D) have less than three passengers
Answer: B
Diff: 1
Page Ref: 288
Skill: Applied/Comprehensive/Integrative
56) The addition of retail stores to a shopping center increases the trading area for each store.
This indicates that ________.
A) trading-area overlap exists between the old and new retailers
B) the retail area is saturated
C) the new stores are parasites
D) store affinities exist between the new and existing stores
Answer: D
Diff: 2
Page Ref: 290
Skill: Applied/Comprehensive/Integrative
57) What statement about the isolated store is correct?
A) Isolated stores typically have high rents.
B) Isolated stores have high trading-area overlap with adjacent shopping centers.
C) Isolated stores have no affinities.
D) Isolated stores are parasite stores.
Answer: C
Diff: 2
Page Ref: 290
Skill: Applied/Comprehensive/Integrative

34

58) A shopping center that properly employs retail balance has a(n) ________ trading area.
A) understored
B) overstored
C) saturated
D) supersaturated
Answer: C
Diff: 2
Page Ref: 291
Skill: Applied/Comprehensive/Integrative
59) A major advantage of ownership versus leasing is ________.
A) the increased ability to predict occupancy costs in future time periods
B) the ability to purchase superior locations in major shopping centers
C) lower capital requirements
D) lower financial risk
Answer: A
Diff: 2
Page Ref: 292
Skill: Applied/Comprehensive/Integrative
60) Ownership of retail facilities is most common in what location type?
A) community shopping center
B) neighborhood shopping center
C) string
D) regional shopping center
Answer: C
Diff: 2
Page Ref: 292
Skill: Applied/Comprehensive/Integrative
61) A major advantage of leasing over ownership is the ________.
A) ability to plan on using a location over the long term
B) freedom from restrictive leasing clauses
C) ability to depreciate a property's building
D) freedom from tying up capital in real-estate
Answer: D
Diff: 2
Page Ref: 292
Skill: Applied/Comprehensive/Integrative
62) A retailer can achieve some of the benefits of both owning and leasing a store through the use
of a ________.
A) net lease
B) graduated lease
C) sale-leaseback
D) maintenance-increase-recoupment lease provision
Answer: C
Diff: 2
Page Ref: 293
Skill: Applied/Comprehensive/Integrative

35

63) Leases for retail locations are often very complicated due to ________.
A) governmental regulations on permitted rent increases
B) their long time duration
C) the uncertain cost of interest over the lease time period
D) the possibility of tenant bankruptcy
Answer: B
Diff: 2
Page Ref: 293
Skill: Applied/Comprehensive/Integrative
64) Which lease type gears a retailer's rental costs to its ability to pay?
A) maintenance-increase-recoupment provision
B) straight lease
C) net lease
D) percentage lease
Answer: D
Diff: 1
Page Ref: 293
Skill: Applied/Comprehensive/Integrative
65) A major advantage of a percentage lease versus a straight lease from the perspective of the
property owner is ________.
A) its simplicity
B) that rental income is known
C) that rental income more accurately reflects increases in a property's value and inflation
D) that retail sales do not have to be audited
Answer: C
Diff: 1
Page Ref: 293
Skill: Applied/Comprehensive/Integrative
66) A retailer's sales must be audited by the property owner in which type of lease?
A) percentage lease
B) straight lease
C) net lease
D) graduated lease
Answer: A
Diff: 2
Page Ref: 293
Skill: Applied/Comprehensive/Integrative
67) A retailer is currently in a shopping center with a large number of vacancies. Several of the
vacant retail locations have high affinities with the existing retailer. The loss in pedestrian traffic
can be partially offset through which form of lease?
A) percentage lease
B) graduated lease
C) net lease
D) maintenance-increase-recoupment lease
Answer: A
Diff: 2
Page Ref: 293
Skill: Applied/Comprehensive/Integrative
36

68) Which form of lease/ownership arrangement has the greatest flexibility from the perspective
of the retailer?
A) a 15-year lease
B) purchase of the property with 10 percent down; a mortgage loan is taken out for the balance
C) a sale-leaseback for 15 years
D) a short-term lease (5 years) with two renewal option periods of 5 years each
Answer: D
Diff: 2
Page Ref: 293-294
Skill: Applied/Comprehensive/Integrative
69) Which two lease provisions set rental terms on the basis of actual operating costs?
A) percentage lease and straight lease
B) graduated lease and percentage lease
C) graduated lease and straight lease
D) maintenance-increase-recoupment lease and net lease
Answer: D
Diff: 2
Page Ref: 294
Skill: Applied/Comprehensive/Integrative
70) A retailer has the greatest control over property maintenance in which rental form?
A) net lease
B) straight lease
C) graduated lease
D) maintenance-increase-recoupment lease
Answer: A
Diff: 2
Page Ref: 294
Skill: Applied/Comprehensive/Integrative
71) An isolated store has no adjacent retailers with which stores can share traffic.
Answer: TRUE
Diff: 1
Page Ref: 276
Skill: Terminology/Concept
72) A secondary business district generally exists in the part of a city or town with the greatest
concentration of office buildings and retail stores.
Answer: FALSE
Diff: 1
Page Ref: 277-279
Skill: Terminology/Concept
73) Many CBDs have been revitalized based on modernization programs by merchants.
Answer: TRUE
Diff: 1
Page Ref: 277-279
Skill: Terminology/Concept

37

74) The kinds of goods and services sold in a secondary business district are similar to those
found in a neighborhood business district.
Answer: FALSE
Diff: 2
Page Ref: 279, 280
Skill: Terminology/Concept
75) Retailers with compatible merchandise lines can often increase their trading area by locating
in a string versus an isolated location.
Answer: TRUE
Diff: 1
Page Ref: 280
Skill: Terminology/Concept
76) Balanced tenancy is generally obtained through lease restrictions relating to store hours, days
open, and interior design.
Answer: FALSE
Diff: 2
Page Ref: 280
Skill: Terminology/Concept
77) There are fewer regional shopping centers than community or neighborhood shopping
centers.
Answer: TRUE
Diff: 1
Page Ref: 283
Skill: Terminology/Concept
78) A power center is a form of regional shopping center.
Answer: FALSE
Diff: 1
Page Ref: 285
Skill: Terminology/Concept
79) The most important single measure of a location's and site's value is the number and quality
of its vehicular traffic.
Answer: FALSE
Diff: 1
Page Ref: 287
Skill: Terminology/Concept
80) Pedestrian and vehicular traffic counts are typically measured through observation.
Answer: TRUE
Diff: 2
Page Ref: 287-288
Skill: Terminology/Concept
81) The compatibility of a retailer with its adjacent retailers is its level of retail balance.
Answer: FALSE
Diff: 1
Page Ref: 290
Skill: Terminology/Concept

38

82) A compromise in terms of occupancy between ownership and leasing is the sale-leaseback.
Answer: TRUE
Diff: 2
Page Ref: 293
Skill: Terminology/Concept
83) A percentage lease is the simplest form of lease to negotiate and implement.
Answer: FALSE
Diff: 2
Page Ref: 293
Skill: Terminology/Concept
84) A net lease is typically used in conjunction with a straight or percentage lease.
Answer: TRUE
Diff: 2
Page Ref: 294
Skill: Terminology/Concept
85) A knockout factor for a specific location is a short duration lease.
Answer: TRUE
Diff: 1
Page Ref: 295
Skill: Terminology/Concept
86) An isolated store location is not appropriate for a destination store.
Answer: FALSE
Diff: 2
Page Ref: 276
Skill: Applied/Comprehensive/Integrative
87) An isolated store has no affinities.
Answer: TRUE
Diff: 2
Page Ref: 276, 290
Skill: Applied/Comprehensive/Integrative
88) Generally, retail balance is better in a shopping district than a shopping center.
Answer: FALSE
Diff: 2
Page Ref: 280
Skill: Applied/Comprehensive/Integrative
89) Balanced tenancy seeks to develop and maintain an undersaturated trading area for all types
of merchandise.
Answer: FALSE
Diff: 2
Page Ref: 280
Skill: Applied/Comprehensive/Integrative
90) Neighborhood business districts and neighborhood shopping centers generally have a similar
retail tenant mix.
Answer: TRUE
Diff: 2
Page Ref: 280, 285-286
Skill: Applied/Comprehensive/Integrative

39

91) The retailers in a string have low affinities with one another.
Answer: FALSE
Diff: 2
Page Ref: 280
Skill: Applied/Comprehensive/Integrative
92) The primary, secondary, and fringe trading areas of a megamall should be lower than for a
traditional regional shopping center.
Answer: FALSE
Diff: 2
Page Ref: 288, 283-284
Skill: Applied/Comprehensive/Integrative
93) A one-hundred percent location for one retailer may not be a one-hundred percent location
for another retailer, due to the need for different affinities or different target market customers.
Answer: TRUE
Diff: 1
Page Ref: 287
Skill: Applied/Comprehensive/Integrative
94) A one-hundred percent location for a bakery could be next to a supermarket in a
neighborhood shopping center.
Answer: FALSE
Diff: 2
Page Ref: 287
Skill: Applied/Comprehensive/Integrative
95) In evaluating a location in a regional shopping center, pedestrian traffic counts should be
taken on the same time of day, day of week, and location.
Answer: FALSE
Diff: 1
Page Ref: 288
Skill: Applied/Comprehensive/Integrative
96) The parking adequacy of a location should be measured by its ability to handle Christmas
season shoppers.
Answer: FALSE
Diff: 1
Page Ref: 290
Skill: Applied/Comprehensive/Integrative
97) Two stores with high affinities for one another have a high degree of shopper interchange.
Answer: TRUE
Diff: 2
Page Ref: 290
Skill: Applied/Comprehensive/Integrative
98) Short-lease terms with renewal options give retailers flexibility, as well as the ability to
continue in a location at a pre-negotiated rate.
Answer: TRUE
Diff: 2
Page Ref: 292
Skill: Applied/Comprehensive/Integrative

40

99) A percentage lease ties rental terms to a location's value, inflation, and the retailer's ability to
pay.
Answer: TRUE
Diff: 1
Page Ref: 293
Skill: Applied/Comprehensive/Integrative
100) In both maintenance-increase-recoupment and net lease arrangements, a retailer's rental
payments reflect actual increases in operating costs.
Answer: TRUE
Diff: 1
Page Ref: 294
Skill: Applied/Comprehensive/Integrative
101) a.
"Often the retailers that are attracted to an isolated location are those that are least
suitable for this location form." Explain this statement.
b. What trade-offs should a retailer evaluate in considering an isolated store location? Explain.
Diff: 2
Page Ref: 276-277
102) Differentiate between a central business district and a regional shopping center.
Diff: 1
Page Ref: 277-279, 283-284
103) a.
Describe why retailers often seek out a string location.
b. Evaluate the suitability of a string versus a neighborhood business district location for a men's
apparel retailer. Include the concepts of trading area, retail balance, and market share in your
analysis.
Diff: 2
Page Ref: 280
104) Describe the pros and cons of a location in a planned shopping center versus a shopping
district location.
Diff: 1
Page Ref: 280, 277
105) Explain how retail balance is obtained in an unplanned business district versus a planned
shopping center.
Diff: 1
Page Ref: 280, 277
106) Factory outlets and off-price chains have increasingly located in "off-price malls." These
malls are commonly owned and planned as a unit. Is an off-price mall a regional or a community
shopping center? Explain your answer.
Diff: 1
Page Ref: 283-285
107) a.
Develop a location and site evaluation for a Dunkin' Donuts franchise.
b. Explain the location attributes listed and their relative importance.
Diff: 2
Page Ref: 287-291
108) What factors need to be considered in the computation of pedestrian traffic counts for a
children's clothing chain? ...vehicular traffic counts?
Diff: 1
Page Ref: 287-288

41

109) Under what conditions should a retailer consider ownership instead of leasing? ...leasing
instead of ownership? ...a sale-leaseback?
Diff: 1
Page Ref: 292, 293
110) What are the advantages and disadvantages to a retailer of the following types of leases?
a. Straight lease
b. Percentage lease
c. Graduated lease
d. Net lease
Diff: 2
Page Ref: 293-294
111) Prepare a checklist of lease clauses that should be considered by a retailer prior to
purchasing a business. Discuss the importance of each clause.
Diff: 2
Page Ref: 293-294
112) Prepare a list of five knockout factors that would disqualify an otherwise satisfactory retail
location. Describe why each factor is important.
Diff: 2
Page Ref: 293-295

42

Chapter 11
1) A retailer structures and assigns tasks, policies, resources, authority, responsibilities, and
rewards through ________.
A) a retail organization
B) human resource management
C) an organization chart
D) job enlargement
Answer: A
Diff: 1
Page Ref: 310
Skill: Terminology/Concept
2) A disadvantage of delegating a retail task to another party is ________.
A) that the designated party may be able to automate the task
B) that the target market may not desire the task
C) the loss of control over the activity
D) that the designated party may conduct the same task for noncompeting retailers
Answer: C
Diff: 2
Page Ref: 311-312
Skill: Terminology/Concept
3) In specialization, each employee is responsible for ________.
A) a clearly defined position
B) a limited range of functions
C) the tasks outlined in his or her job description
D) the quality and quantity of his or her work
Answer: B
Diff: 1
Page Ref: 313
Skill: Terminology/Concept
4) A major advantage of specialization is ________.
A) the need for fewer employees
B) the generation of broad-based potential managers
C) less employee boredom
D) reduced training
Answer: D
Diff: 1
Page Ref: 313
Skill: Terminology/Concept

43

5) A job description contains an outline of ________.


A) jobs that are classified through product classification
B) job title, objectives, duties, and responsibilities
C) superior/subordinate reporting and communication relationships
D) job objectives mutually agreed upon by employee and superior
Answer: B
Diff: 1
Page Ref: 313
Skill: Terminology/Concept
6) A functional classification for a car dealer would classify jobs into which of the following
divisions?
A) subcompact, compact, and SUV
B) sales promotion, repairs, car sales, and store operations
C) new car, new truck, used car, used truck
D) main dealership and branch dealership locations A, B, and C
Answer: B
Diff: 2
Page Ref: 313
Skill: Terminology/Concept
7) A product classification for a greeting card retailer would classify jobs into which of the
following divisions?
A) Hallmark, American Greetings, and Gibson
B) main store and branch store locations A, B, and C
C) buyer, sales personnel, store manager, and assistant store manager
D) greeting cards, gifts, wrapping paper, and school supplies
Answer: D
Diff: 2
Page Ref: 313
Skill: Terminology/Concept
8) The ________ method of job classification places store-based personnel under the direct
control of the branch manager.
A) functional
B) interdivisional
C) geographic
D) product
Answer: C
Diff: 2
Page Ref: 313
Skill: Terminology/Concept

44

9) Reporting relationships among employees within a retail firm from the lowest levels to the
highest levels are described in the ________.
A) hierarchy of authority
B) job description
C) management by objectives
D) management by exception
Answer: A
Diff: 2
Page Ref: 314
Skill: Terminology/Concept
10) In a flat organization, ________.
A) a large number of subordinates reports to one supervisor
B) communication is impeded by the large number of organizational layers
C) too few employees generally report to one executive
D) an organization may appear impersonal to employees
Answer: A
Diff: 1
Page Ref: 314
Skill: Terminology/Concept
11) A major advantage of a flat organization is ________.
A) top management's frequent contact with employees
B) quicker response time to the handling of important problems or opportunities
C) the existence of many levels of supervision
D) fewer employees reporting to each manager
Answer: B
Diff: 2
Page Ref: 314
Skill: Terminology/Concept
12) A major advantage of a tall retail organization is ________.
A) close employee supervision
B) the large number of employees reporting to one manager
C) quick responsiveness to problems/opportunities within the organization
D) excellent communication between high-ranking and low-ranking employees
Answer: A
Diff: 2
Page Ref: 314
Skill: Terminology/Concept
13) The hierarchical relationships within the firm are displayed in a(n) ________.
A) Mazur plan
B) management-by-objectives grid
C) job description
D) organization chart
Answer: D
Diff: 1
Page Ref: 314
Skill: Terminology/Concept

45

14) Which retail institution type has the simplest organization structure?
A) branch location
B) diversified retailer
C) independent
D) variety store
Answer: C
Diff: 1
Page Ref: 314
Skill: Terminology/Concept
15) The four functional areas in the Mazur plan are ________.
A) merchandising, publicity, store management, and accounting and control
B) merchandising, store operations, accounting, and finance
C) product, price, promotion, and distribution
D) buying, selling, store operations, and accounting
Answer: A
Diff: 1
Page Ref: 316, 317
Skill: Terminology/Concept
16) Buying and selling is under the control of the ________ in the Mazur plan.
A) buyer
B) marketing manager
C) merchandising manager
D) product manager
Answer: C
Diff: 1
Page Ref: 316, 317
Skill: Terminology/Concept
17) Under the basic Mazur plan, which executive has responsibility for reaching profit goals?
A) buyer
B) store operations manager
C) publicity director
D) director of sales
Answer: A
Diff: 1
Page Ref: 316, 317
Skill: Terminology/Concept
18) Branch store executives are directly responsible to main store retail executives in which form
of retail organization?
A) equal store
B) diversified retailer
C) main store control
D) separate store
Answer: C
Diff: 1
Page Ref: 318
Skill: Terminology/Concept

46

19) Centralization of management is practiced in which retail organization form?


A) chain store
B) separate store
C) equal store
D) main store control
Answer: D
Diff: 2
Page Ref: 318
Skill: Terminology/Concept
20) In the main store control organization, ________.
A) decentralization is practiced
B) centralization is practiced
C) merchandise managers are placed in branch stores
D) each branch has autonomy for merchandising and operations
Answer: B
Diff: 2
Page Ref: 318
Skill: Terminology/Concept
21) The main store control organization works best when ________.
A) customers in the branch stores have localized buying preferences
B) the retailer seeks to advertise specialized goods in each market
C) there are few branches and the buying preferences of branch store customers are similar to the
main store's customers
D) too little attention has been given to each branch location
Answer: C
Diff: 2
Page Ref: 318
Skill: Terminology/Concept
22) Transferring stock between branches is most difficult in which form of retail organization?
A) equal store
B) separate store
C) main store control
D) multiline retail organization
Answer: B
Diff: 2
Page Ref: 318
Skill: Terminology/Concept
23) The distinct needs of branch store customers are most recognized in which form of retail
organization?
A) equal store
B) multiline retail organization
C) main store control organization
D) separate store
Answer: D
Diff: 1
Page Ref: 318
Skill: Terminology/Concept

47

24) Which form of retail store organization seeks to achieve the benefits of both centralization
and decentralization?
A) Mazur plan
B) separate store
C) equal store
D) main store control
Answer: C
Diff: 2
Page Ref: 318
Skill: Terminology/Concept
25) Which form of retail organization separates responsibility for buying and selling?
A) equal store
B) separate store
C) main store control
D) Mazur plan
Answer: A
Diff: 2
Page Ref: 318
Skill: Terminology/Concept
26) Buying is centralized and selling is managed locally in the ________ organization format.
A) Mazur plan
B) separate store
C) equal store
D) main store control
Answer: C
Diff: 1
Page Ref: 318
Skill: Terminology/Concept
27) Which activity comprises the recruitment, selection, training, compensation, and supervision
of retail personnel?
A) store operations
B) human resource management
C) store management
D) pre-training
Answer: B
Diff: 1
Page Ref: 319
Skill: Terminology/Concept
28) The gathering of information about the functions and requirements of each job is referred to
as ________.
A) a traditional job description
B) a goal-oriented job description
C) job analysis
D) the hierarchy of authority
Answer: C
Diff: 1
Page Ref: 325
Skill: Terminology/Concept
48

29) A retailer can determine which criteria are best correlated with job success through the use of
a(n) ________.
A) application blank
B) weighted application blank
C) goal-oriented job description
D) job analysis
Answer: B
Diff: 1
Page Ref: 327
Skill: Terminology/Concept
30) Which job selection technique requires that a job candidate score above a minimum cutoff as
a pre-condition for being hired?
A) goal-oriented job description
B) application blank
C) weighted application blank
D) job analysis
Answer: C
Diff: 2
Page Ref: 327
Skill: Terminology/Concept
31) The review of company policies and history, as well as a job orientation, are important
components of ________.
A) training programs
B) pre-training programs
C) the job description
D) the weighted application blank
Answer: B
Diff: 1
Page Ref: 327
Skill: Terminology/Concept
32) Which employee compensation plan has no fixed-cost component?
A) straight commission plan
B) straight salary plan
C) salary plus commission plan
D) compensation cafeteria
Answer: A
Diff: 2
Page Ref: 330
Skill: Terminology/Concept

49

33) Which compensation plan allows executives to choose among bonuses, deferred bonuses,
stock options, and other fringe benefits?
A) straight commission plan
B) straight salary plan
C) salary plus commission plan
D) compensation cafeteria
Answer: D
Diff: 1
Page Ref: 330
Skill: Terminology/Concept
34) Which of these factors is a form of dissatisfier (minimum expectations)?
A) achievement
B) work conditions
C) responsibility
D) advancement
Answer: B
Diff: 2
Page Ref: 331
Skill: Terminology/Concept
35) Which of these statements about desired goals is correct?
A) Desired goals relate more to the job than to the work environment.
B) A motivated employee requires fulfillment of only dissatisfiers.
C) A fair compensation package is an example of a desired goal.
D) Desired goals can generally influence motivation in only one waynegatively.
Answer: A
Diff: 1
Page Ref: 332
Skill: Terminology/Concept
36) A retailer decided to outsource its logistics operations to FedEx after studying its resources.
This illustrates which stage in setting up a retail organization?
A) integrating positions through an organization chart
B) classifying jobs
C) dividing the tasks among channel members
D) grouping the retailer's tasks into jobs
Answer: C
Diff: 2
Page Ref: 311-312
Skill: Applied/Comprehensive/Integrative
37) A problem with extreme specialization of tasks in retailing is ________.
A) high training costs
B) difficulty in hiring personnel with necessary skills
C) employees not being aware of the importance of their tasks to the retailer's overall goals
D) the difficulty of clearly defining job-related tasks
Answer: C
Diff: 2
Page Ref: 312-313
Skill: Applied/Comprehensive/Integrative

50

38) A major disadvantage of extreme task specialization is ________.


A) poorly defined employee expectations
B) difficulty in hiring personnel with suitable training
C) high training costs
D) poor personnel morale
Answer: D
Diff: 2
Page Ref: 313
Skill: Applied/Comprehensive/Integrative
39) A disadvantage of extreme job specialization is high ________.
A) training costs
B) personnel boredom
C) salary expectations
D) need for supervision
Answer: B
Diff: 2
Page Ref: 313
Skill: Applied/Comprehensive/Integrative
40) A retailer can overcome problems with extreme task specialization by ________.
A) job rotation and job enlargement
B) raising employee salaries
C) developing a child care center
D) reprimanding employees for lateness
Answer: A
Diff: 2
Page Ref: 313
Skill: Applied/Comprehensive/Integrative
41) Employees receive a relatively homogeneous cluster of work tasks when ________.
A) specialization is used properly
B) specialization is used to an extreme degree
C) specialization is used too little
D) a firm has clear reporting responsibilities
Answer: A
Diff: 1
Page Ref: 313
Skill: Applied/Comprehensive/Integrative
42) The buyer form of organization within a department store is a form of ________.
A) geographic classification
B) product classification
C) functional classification
D) combination organization chart
Answer: B
Diff: 2
Page Ref: 313
Skill: Applied/Comprehensive/Integrative

51

43) The equal store organization is a form of ________.


A) geographic classification
B) product classification
C) functional classification
D) combination organization chart
Answer: A
Diff: 2
Page Ref: 313, 318
Skill: Applied/Comprehensive/Integrative
44) A retailer uses a functional classification system for jobs; in addition, some employees may
be placed in special teams relating to interfunctional areas. An employee with two bosses (the
functional boss and the team leader) ________.
A) is in an equal store organization
B) is in a flat organization
C) is in a tall organization
D) does not have a clear hierarchy of authority
Answer: D
Diff: 2
Page Ref: 313, 314
Skill: Applied/Comprehensive/Integrative
45) A retailer uses different buyers in its main store and its suburban branches so as to better
reflect each target market. This illustrates which job classification method?
A) geographic classification
B) product classification
C) functional classification
D) combination classification
Answer: D
Diff: 2
Page Ref: 313
Skill: Applied/Comprehensive/Integrative
46) The overall hierarchy of authority in a retail organization is most clearly described in the
firm's ________.
A) organization mission
B) corporate culture
C) job descriptions
D) organization chart
Answer: D
Diff: 2
Page Ref: 314
Skill: Applied/Comprehensive/Integrative

52

47) In comparison to chain retailers, the organization structure of an independent is most likely
to be ________.
A) flat
B) tall
C) functional
D) decentralized
Answer: A
Diff: 1
Page Ref: 314
Skill: Applied/Comprehensive/Integrative
48) A span of control refers to the number of subordinates reporting to one manager. A firm with
a large span of control utilizes a ________ organization.
A) tall
B) flat
C) functional
D) centralized
Answer: B
Diff: 2
Page Ref: 314
Skill: Applied/Comprehensive/Integrative
49) Which form of organization results in close employee supervision?
A) flat organization
B) tall organization
C) Mazur plan
D) separate store organization
Answer: B
Diff: 2
Page Ref: 314
Skill: Applied/Comprehensive/Integrative
50) Which form of organization is most in accord with the notion of motivation that argues that
the average worker dislikes responsibility and prefers to be led?
A) flat
B) tall
C) functional
D) decentralized
Answer: B
Diff: 2
Page Ref: 314
Skill: Applied/Comprehensive/Integrative
51) The retailer most likely to have a tall organization is a ________.
A) small independent retailer
B) centralized retailer
C) decentralized retailer
D) main store control-format retailer
Answer: C
Diff: 2
Page Ref: 314
Skill: Applied/Comprehensive/Integrative
53

52) Which form of organization is most in accord with the view of motivation that stresses
participatory management?
A) flat
B) tall
C) functional
D) decentralized
Answer: A
Diff: 2
Page Ref: 314
Skill: Applied/Comprehensive/Integrative
53) The Mazur plan most closely corresponds to which method of classifying jobs?
A) combination organization chart
B) product classification
C) geographic classification
D) functional classification
Answer: D
Diff: 2
Page Ref: 316, 317
Skill: Applied/Comprehensive/Integrative
54) A major disadvantage with the Mazur plan is that ________.
A) the distinction between functional areas may be unclear
B) the distinction between line and staff executives may be unclear
C) salespeople report to a buyer who is not on the selling floor
D) it is generally implemented through a tall organization
Answer: C
Diff: 2
Page Ref: 316, 317
Skill: Applied/Comprehensive/Integrative
55) Which form of branch department store organization has the lowest overall costs?
A) decentralized
B) separate store arrangement
C) equal store arrangement
D) main store control
Answer: D
Diff: 2
Page Ref: 318
Skill: Applied/Comprehensive/Integrative
56) Which form of branch department store organization has the greatest overall customer
orientation?
A) centralized
B) separate store arrangement
C) equal store arrangement
D) main store control format
Answer: B
Diff: 2
Page Ref: 318
Skill: Applied/Comprehensive/Integrative

54

57) The most expensive form of organization for a department store with several large branch
stores is ________.
A) separate store
B) equal store
C) centralized plan
D) main store control format
Answer: A
Diff: 2
Page Ref: 318
Skill: Applied/Comprehensive/Integrative
58) A separate store organization should be utilized when ________.
A) branches are small and customer tastes are similar
B) branches are large and customer tastes vary by location
C) buying and selling functions need to be differentiated
D) stock needs to be transferred among branches
Answer: B
Diff: 2
Page Ref: 318
Skill: Applied/Comprehensive/Integrative
59) The most complex form of retail organization is found in ________ .
A) independents
B) centralized chain retailers
C) decentralized chain retailers
D) diversified retailers
Answer: D
Diff: 2
Page Ref: 318-319
Skill: Applied/Comprehensive/Integrative
60) Which recruitment source involves the least degree of screening of potential job candidates?
A) advertisements
B) employment agencies
C) former employees
D) other channel members
Answer: A
Diff: 1
Page Ref: 325
Skill: Applied/Comprehensive/Integrative

55

61) A firm determines that job candidates for part-time cashier positions that have B or better
averages are three times more likely to successfully complete six months with a firm than those
with averages less than C. Where in the human resource management process should the firm use
this information?
A) job description
B) goal-oriented job description
C) application blank
D) weighted application blank
Answer: D
Diff: 2
Page Ref: 327
Skill: Applied/Comprehensive/Integrative
62) The major difference between an application blank and a weighted application blank is that
the weighted application blank is ________.
A) scored to determine if a job candidate meets the minimum cutoff point
B) verified by the use of a polygraph
C) completed by the interviewer
D) verified by checking listed references
Answer: A
Diff: 2
Page Ref: 327
Skill: Applied/Comprehensive/Integrative
63) The major difference between pre-training and training is that pre-training is ________.
A) oriented toward giving personnel human relations skills
B) related to communicating an organization's culture and policies
C) remedial in nature
D) useful for low-level personnel only
Answer: B
Diff: 1
Page Ref: 327-328
Skill: Applied/Comprehensive/Integrative
64) The retail training method which involves no active participation by trainees is ________.
A) case study
B) programmed instruction
C) lecture
D) behavior modeling
Answer: C
Diff: 1
Page Ref: 329
Skill: Applied/Comprehensive/Integrative

56

65) A major disadvantage of a straight commission plan in comparison to a straight salary plan to
the retailer is the ________.
A) lack of management control over an employee's performance of nonselling tasks
B) higher possible overall compensation costs
C) greater incentive to increase productivity
D) ability to attract better employees due to security
Answer: A
Diff: 1
Page Ref: 330
Skill: Applied/Comprehensive/Integrative
66) An advantage of a compensation cafeteria for top executives is the ability for executives to
________.
A) increase their total compensation
B) tie earnings to productivity
C) receive bonuses that supplement their salary versus salary increases
D) limit their state and federal income taxes through deferring benefits
Answer: D
Diff: 1
Page Ref: 330
Skill: Applied/Comprehensive/Integrative
67) The minimum expectations/desired goals concept is most closely in accord with ________.
A) the notion that only economic inducements really motivate employees
B) the notion that employees can be self-managers and assigned authority
C) high-task specialization
D) a tall organization
Answer: B
Diff: 2
Page Ref: 331
Skill: Applied/Comprehensive/Integrative
68) According to the minimum expectations/desired goals concept, a high salary results in
________.
A) a motivated worker
B) an absence of job dissatisfaction
C) job dissatisfaction
D) job satisfaction
Answer: B
Diff: 2
Page Ref: 331
Skill: Applied/Comprehensive/Integrative

57

69) A retailer seeks input from employees at weekly meetings. Data on store performance is
shared with employees and employees are rewarded on the basis of sales per square foot and a
store's net profit as a percent of sales. This best illustrates ________.
A) minimum expectations
B) desired goals
C) dissatisfiers
D) a tall organization
Answer: C
Diff: 2
Page Ref: 331
Skill: Applied/Comprehensive/Integrative
70) A retailer with a supervisory orientation that assumes that the average worker lacks ambition
and dislikes responsibility would most likely employ a ________.
A) loosely structured supervision style
B) tightly structured supervision style
C) flat organization
D) policy of promotion from within
Answer: B
Diff: 2
Page Ref: 332
Skill: Applied/Comprehensive/Integrative
71) A retail customer cannot perform any tasks in a retail channel of distribution.
Answer: FALSE
Diff: 2
Page Ref: 311-312
Skill: Terminology/Concept
72) Extreme specialization can result in employee boredom.
Answer: TRUE
Diff: 1
Page Ref: 313
Skill: Terminology/Concept
73) A firm that has separate managers responsible for buying and selling uses the product method
of classifying jobs.
Answer: FALSE
Diff: 2
Page Ref: 313
Skill: Terminology/Concept
74) Flat organizations are characterized by good communication between top managers and
lower-level employees.
Answer: TRUE
Diff: 2
Page Ref: 313
Skill: Terminology/Concept
75) The simplest form of retail organization is most likely to be found in independents.
Answer: TRUE
Diff: 2
Page Ref: 315
Skill: Terminology/Concept
58

76) The Mazur plan is a geographic method of classifying jobs.


Answer: FALSE
Diff: 1
Page Ref: 316, 317
Skill: Terminology/Concept
77) The main store control form of organization is the preferred form of retail organization when
the buying preferences of branch customers closely resemble those at the main store.
Answer: TRUE
Diff: 2
Page Ref: 318
Skill: Terminology/Concept
78) The separate store organization form minimizes problems associated with a blurred image
across retail units of a chain.
Answer: FALSE
Diff: 2
Page Ref: 318
Skill: Terminology/Concept
79) The most complex organization forms are found in diversified retailers.
Answer: TRUE
Diff: 2
Page Ref: 318-319
Skill: Terminology/Concept
80) Low experience of retail personnel, long store hours, and high variations in customer demand
all contribute to the difficulty in managing retail personnel.
Answer: TRUE
Diff: 1
Page Ref: 322
Skill: Terminology/Concept
81) Job analysis precedes the development of job descriptions.
Answer: TRUE
Diff: 1
Page Ref: 326
Skill: Terminology/Concept
82) The application blank is designed to predict success and failure for selected positions in
retailing.
Answer: FALSE
Diff: 1
Page Ref: 327
Skill: Terminology/Concept
83) Pre-training programs are designed to give employees remedial training in mathematics and
reading.
Answer: FALSE
Diff: 1
Page Ref: 327
Skill: Terminology/Concept

59

84) Compensation cafeterias are used to provide flexibility in compensation for low-level
employees, as well as top management.
Answer: FALSE
Diff: 1
Page Ref: 330
Skill: Terminology/Concept
85) Flat organizations assume that employees can be self-managers and assigned authority.
Answer: TRUE
Diff: 2
Page Ref: 332, 314
Skill: Terminology/Concept
86) A retail organization provides a structure for satisfying the needs of target market customers,
employees, and management.
Answer: TRUE
Diff: 1
Page Ref: 310
Skill: Applied/Comprehensive/Integrative
87) High task specialization often causes poor morale.
Answer: TRUE
Diff: 1
Page Ref: 313
Skill: Applied/Comprehensive/Integrative
88) A buyer is responsible for purchases in a branch location. This illustrates a product
classification method of classifying jobs.
Answer: FALSE
Diff: 2
Page Ref: 313
Skill: Applied/Comprehensive/Integrative
89) In general, the flatter the organization, the more responsive it is to changes in the retail
environment.
Answer: TRUE
Diff: 2
Page Ref: 314
Skill: Applied/Comprehensive/Integrative
90) A tall organization is generally used by retailers that advocate high levels of employee
involvement.
Answer: FALSE
Diff: 2
Page Ref: 314, 332
Skill: Applied/Comprehensive/Integrative
91) The traditional Mazur plan reflects the importance of store branch locations.
Answer: FALSE
Diff: 2
Page Ref: 316, 317
Skill: Applied/Comprehensive/Integrative

60

92) While the separate store adapts to an area's unique needs, it is costly since it requires
duplication of effort and the loss of quantity discounts.
Answer: TRUE
Diff: 2
Page Ref: 318
Skill: Applied/Comprehensive/Integrative
93) An important means of gathering data in job analysis is observation.
Answer: TRUE
Diff: 2
Page Ref: 327
Skill: Applied/Comprehensive/Integrative
94) The weights in a weighted application blank are derived using empirical data on successful
and unsuccessful employees.
Answer: TRUE
Diff: 2
Page Ref: 327
Skill: Applied/Comprehensive/Integrative
95) Psychological and achievement tests should be used for all job candidates regardless of level.
Answer: FALSE
Diff: 2
Page Ref: 327
Skill: Applied/Comprehensive/Integrative
96) Inexpensive tools (such as application blanks) should be used in early personnel screening
stages, whereas more expensive tools (such as personal interviews) should be used in later stages
due to cost considerations.
Answer: TRUE
Diff: 1
Page Ref: 327
Skill: Applied/Comprehensive/Integrative
97) Retail training techniques such as role playing and behavior modeling are particularly well
suited for store operations personnel.
Answer: FALSE
Diff: 2
Page Ref: 327, 328
Skill: Applied/Comprehensive/Integrative
98) According to minimum expectations/desired goals concept, the factors that result in job
satisfaction are significantly different from those involved in job dissatisfaction.
Answer: TRUE
Diff: 2
Page Ref: 331-332
Skill: Applied/Comprehensive/Integrative
99) A firm using a theory of motivation that stresses close supervision of employees is most
likely to use a flat organization format.
Answer: FALSE
Diff: 2
Page Ref: 332, 314
Skill: Applied/Comprehensive/Integrative

61

100) A firm utilizing the theory of motivation that assumes that employees can be self-managers
is likely to use extreme specialization.
Answer: FALSE
Diff: 2
Page Ref: 332, 313
Skill: Applied/Comprehensive/Integrative
101) a.
Explain which channel member retail tasks can be typically assigned to
specialists.
b. What risk does a retailer have in the division of retail tasks to consumers?
Diff: 1
Page Ref: 311-312
102) Under what conditions should a retailer classify jobs using a functional classification? ...a
product classification? ...a geographic classification? Explain your answers.
Diff: 1
Page Ref: 313
103) a.
Develop an organization chart for a stationery retailer with three employees.
Describe the rationale used in your organization plan.
b. Develop an organization chart for a department store with five branch locations and a main
store. Use the equal store organization format.
Diff: 2
Page Ref: 315-318
104) a.
Differentiate among the main store control format, the separate store, and equal
store organizational arrangement as applied to department stores.
b. What are the major advantages and disadvantages of each format?
Diff: 1
Page Ref: 318
105) a.
Outline the special organizational needs of diversified retail institutions.
b. How do these differ from the special needs of a department store chain? Explain your answer.
Diff: 2
Page Ref: 318-319, 316-318
106) a.
Examine the special human resource environment experienced by a typical
department store.
b. Develop an employee selection, training, and motivation plan designed to work well in this
environment.
Diff: 1
Page Ref: 322
107) Develop a list of nontraditional recruitment sources for a fast-food franchise that is having
difficulty staffing its locations with part-time teenagers (due to the reduction in the number of
teenagers in the population). Evaluate each source.
Diff: 1
Page Ref: 325
108) a.
Differentiate between an application blank and a weighted application blank.
b. Explain how you would develop a weighted application blank to identify job candidates with
high potential of success as retail buyers.
Diff: 1
Page Ref: 327

62

109) Discuss how role playing and behavior modeling can be used to teach and reinforce
effective personal selling techniques.
Diff: 1
Page Ref: 329
110) a.
Evaluate the advantages and disadvantages of four alternative compensation plans
for retail employees and executives.
b. Under what conditions would you use each compensation plan?
Diff: 1
Page Ref: 330
111) a.
Describe how the minimum expectations ("dissatisfiers")/desired goals
("satisfiers")concept changes the traditional view of employee satisfaction.
b. How would you motivate retail employees using the minimum expectations
("dissatisfiers")/desired goals ("satisfiers")concept?
Diff: 2
Page Ref: 290-291
112) a.
Differentiate among the three styles of supervising retail employees.
b. Describe how each view of motivation could be implemented in human resource
management.
Diff: 2
Page Ref: 332

63

Chapter 12
1) A retailer's revenues and expenses for a given period of time are summarized in a ________.
A) profit-and-loss (income) statement
B) balance sheet
C) strategic profit model
D) product/market opportunity matrix
Answer: A
Diff: 1
Page Ref: 336
Skill: Terminology/Concept
2) A retailer's assets, liabilities, and net worth are summarized at a specific period of time in a
________.
A) profit-and-loss (income) statement
B) balance sheet
C) strategic profit model
D) product/market opportunity matrix
Answer: B
Diff: 1
Page Ref: 337
Skill: Terminology/Concept
3) A retail asset is ________.
A) the net worth of a retailer as reflected on a balance sheet
B) an item that is either cash or can be easily converted to cash
C) an item that a retailer owns that has a monetary value
D) the value of items the retailer owns less retail liabilities on these items
Answer: C
Diff: 1
Page Ref: 337
Skill: Terminology/Concept
4) Which are examples of current assets to a retailer?
A) cash, inventory on hand, and accounts receivable
B) buildings, fixtures, and land
C) accounts receivable, sales tax receipts before required payments, and fixtures
D) inventory on order, fixtures, and replacement parts in inventory
Answer: A
Diff: 1
Page Ref: 337
Skill: Terminology/Concept

64

5) Which are examples of fixed assets to a retailer?


A) cash, inventory on hand, and accounts receivable
B) buildings, store fixtures, and real-estate
C) accounts receivable, sales tax receipts before required payments, and fixtures
D) inventory on order, fixtures, and accounts receivable
Answer: B
Diff: 1
Page Ref: 337
Skill: Terminology/Concept
6) An example of a hidden asset to a retailer is ________.
A) a long-term relationship with a supplier
B) goodwill paid by the retailer in a recent acquisition
C) valuable depreciated real-estate
D) a valuable warehouse recently purchased at its appraised value
Answer: C
Diff: 2
Page Ref: 337
Skill: Terminology/Concept
7) A retailer's assets equal its ________.
A) liabilities plus net worth
B) net worth less liabilities
C) current assets less current liabilities
D) net worth
Answer: A
Diff: 2
Page Ref: 338
Skill: Terminology/Concept
8) A retailer's net worth equals its ________.
A) current assets minus current liabilities
B) assets minus liabilities
C) current plus fixed assets
D) fixed assets minus fixed liabilities
Answer: B
Diff: 1
Page Ref: 338
Skill: Terminology/Concept
9) A retailer's net worth is also referred to as its ________.
A) current assets plus fixed assets
B) net assets
C) present value of assets
D) owner's equity
Answer: D
Diff: 1
Page Ref: 338
Skill: Terminology/Concept

65

10) The relationship between a retailer's net profits and net sales is its ________.
A) asset turnover
B) net profit margin
C) operating costs
D) cost of goods sold
Answer: B
Diff: 1
Page Ref: 338
Skill: Terminology/Concept
11) Net sales divided by total assets equals ________.
A) financial leverage
B) investment intensity
C) inventory turnover
D) asset turnover
Answer: D
Diff: 1
Page Ref: 338
Skill: Terminology/Concept
12) A firm can increase its asset turnover performance by ________.
A) lowering rental costs through use of low-cost warehouse-type locations
B) reducing labor expense through centralized operations
C) increasing liabilities to lower the asset base
D) stocking inventory that is fast-moving
Answer: D
Diff: 2
Page Ref: 338
Skill: Terminology/Concept
13) The return on assets (ROA) measure for a retailer is comprised of ________.
A) gross profit and operating expenses
B) asset turnover and net profit margin
C) gross margin return on inventory (GMROI) and inventory turnover
D) net profit and investment intensity
Answer: B
Diff: 2
Page Ref: 339
Skill: Terminology/Concept
14) Financial leverage equals ________.
A) total assets divided by net worth
B) total assets divided by total liabilities
C) total current assets divided by total current liabilities
D) (net worth - total assets) divided by net sales
Answer: A
Diff: 1
Page Ref: 339
Skill: Terminology/Concept

66

15) A retailer can increase his or her financial leverage through ________.
A) selling common stock
B) leasing rather than purchasing assets
C) reducing operating expenses
D) increasing short- and long-term debt
Answer: D
Diff: 2
Page Ref: 339
Skill: Terminology/Concept
16) The relationship among asset turnover, net profit margin, and financial leverage is known as
________.
A) asset turnover
B) return on assets
C) the strategic profit model
D) zero-based budgeting
Answer: C
Diff: 1
Page Ref: 340
Skill: Terminology/Concept
17) The return on net worth (RONW) ratio is based on a retailer's ________.
A) net profit margin and financial leverage
B) net profit margin and asset turnover
C) net profit margin, asset turnover, and financial leverage
D) gross profit margin and operating costs as a percent of sales
Answer: C
Diff: 2
Page Ref: 340
Skill: Terminology/Concept
18) Return on investment is measured by which ratio?
A) return on net sales
B) return on net worth
C) assets to net sales
D) accounts payable to net sales
Answer: B
Diff: 1
Page Ref: 340
Skill: Terminology/Concept
19) The quick ratio equals ________.
A) (cash + accounts receivable) divided by total current liabilities
B) total assets divided by annual net sales
C) total assets divided by total liabilities
D) current assets total current liabilities
Answer: A
Diff: 1
Page Ref: 340
Skill: Terminology/Concept

67

20) A retailer can best measure its liquidity by evaluating its ________.
A) collection period
B) return on net sales ratio
C) accounts payable to net sales ratio
D) quick ratio
Answer: D
Diff: 2
Page Ref: 340
Skill: Terminology/Concept
21) The current ratio equals ________.
A) (cash + accounts receivable) divided by total current liabilities
B) total assets divided by annual net sales
C) total assets divided by total liabilities
D) total current assets divided by total current liabilities
Answer: D
Diff: 1
Page Ref: 340
Skill: Terminology/Concept
22) A collection period equals ________.
A) accounts receivable divided by net sales
B) [(cash + accounts receivable) divided by net sales] 365
C) (accounts receivable divided by net sales) 365
D) (current assets divided by net sales) 365
Answer: C
Diff: 1
Page Ref: 340
Skill: Terminology/Concept
23) A retailer seeking to decrease its collection period should ________.
A) decrease the frequency of mailing credit statements
B) reduce its debt through the sale of common stock
C) encourage slow-paying customers to use bank credit cards
D) sell assets to convert them to cash
Answer: C
Diff: 2
Page Ref: 340
Skill: Terminology/Concept
24) Leveraged buyouts are characterized by ________.
A) initial public offerings (IPOs)
B) high degrees of debt
C) financing from real-estate investment trusts (REITs)
D) mergers and consolidations
Answer: B
Diff: 1
Page Ref: 343
Skill: Terminology/Concept

68

25) As part of Chapter 11 bankruptcy protection, a retailer can ________.


A) raise additional capital for mergers
B) refuse to pay bills
C) get out of leases
D) convert stock ownership to bonds
Answer: C
Diff: 1
Page Ref: 343
Skill: Terminology/Concept
26) A retailer's planned expenditures for a given time period, based on its expected performance,
is its ________.
A) budget
B) financing needs
C) sales forecast
D) forecast
Answer: A
Diff: 1
Page Ref: 345
Skill: Terminology/Concept
27) A participative relationship is the keystone of ________ budgeting.
A) hierarchical
B) centralized
C) bottom-up
D) top-down
Answer: C
Diff: 2
Page Ref: 346
Skill: Terminology/Concept
28) An example of an operating expenditure is ________.
A) depreciation
B) salesperson salaries
C) fixture costs
D) computer costs
Answer: B
Diff: 2
Page Ref: 347
Skill: Terminology/Concept
29) An example of a fixed cost to a electronics retailer is ________.
A) advertising expense
B) personnel bonuses
C) sales commissions
D) electric utility expense
Answer: D
Diff: 2
Page Ref: 347
Skill: Terminology/Concept

69

30) Natural account expenses are ________.


A) related to a retailer's performance during the budget period
B) classified on the basis of purpose or activity
C) reported by the names of their cost
D) shared by two or more departments
Answer: C
Diff: 1
Page Ref: 347
Skill: Terminology/Concept
31) The budgeting process begins anew each time in ________ budgeting.
A) incremental
B) zero-based
C) bottom-up
D) top-down
Answer: B
Diff: 2
Page Ref: 348
Skill: Terminology/Concept
32) In incremental budgeting, ________.
A) budgeted amounts are inflexible throughout the budget time period
B) the budget is changed to reflect input from lower-level executives, as well as middle and top
management
C) a retailer starts each expense classification at zero and adds an appropriate amount
D) past budgets are used as a guide in the current budgeting process
Answer: D
Diff: 2
Page Ref: 348
Skill: Terminology/Concept
33) December accounts for 25 percent of a clothing store's annual sales. Thirty percent of
December's sales are on the retailer's own credit card. These sales will be paid for by consumers
sometimes in January of the following year. These credit sales have a significant impact on the
retailer's ________ budget.
A) cash flow
B) zero-based
C) incremental
D) top-down
Answer: A
Diff: 2
Page Ref: 347
Skill: Terminology/Concept

70

34) The undertaking of a new retail venture precluded a retailer from other ventures due to the
scarcity of resources (capital, management talent, and labor). This refers to ________.
A) zero-based budgeting
B) top-down budgeting
C) opportunity costs
D) bottom-up budgeting
Answer: C
Diff: 2
Page Ref: 350-351
Skill: Terminology/Concept
35) Which strategy involves productivity?
A) A retailer trains its sales personnel in order to increase the sale of related items.
B) A retailer sells common stock at $15 per share.
C) A retailer sells a $10 million long-term bond to finance new store construction.
D) A retailer uses an advertising agency to develop an image-related promotional theme.
Answer: A
Diff: 2
Page Ref: 351
Skill: Terminology/Concept
36) A firm's current assets equal $150,000; its fixed assets are $850,000; its current liabilities are
$225,000 and its fixed liabilities are $400,000. What is its net worth?
A) $75,000
B) $375,000
C) $450,000
D) $600,000
Answer: B
Diff: 1
Page Ref: 338
Skill: Applied/Comprehensive/Integrative
37) A retailer can increase its profit margin by ________.
A) increasing its financial leverage
B) increasing debt
C) increasing its marketing expenditures
D) lowering its cost of goods sold
Answer: D
Diff: 2
Page Ref: 338
Skill: Applied/Comprehensive/Integrative
38) A retailer will have low asset turnover when it has ________.
A) a high proportion of slow-selling inventory
B) high financial leverage
C) a high profit margin
D) high debt relative to assets
Answer: A
Diff: 2
Page Ref: 338
Skill: Applied/Comprehensive/Integrative

71

39) A retailer can improve its asset turnover by ________.


A) reducing interest expenditures
B) utilizing quick response (QR) inventory planning
C) increasing financial leverage
D) lowering operating expenses
Answer: B
Diff: 2
Page Ref: 338
Skill: Applied/Comprehensive/Integrative
40) A disadvantage to a firm's having too high an asset turnover ratio is the ________.
A) high inventory holding costs
B) high quantity of stale merchandise on hand
C) loss of quantity discounts with suppliers
D) loss of bargaining power with suppliers
Answer: C
Diff: 2
Page Ref: 338
Skill: Applied/Comprehensive/Integrative
41) A retailer has $10 of assets for each $9 of liabilities. What is its financial leverage?
A) 0.9 times
B) 9.0 times
C) 10.0 times
D) The answer cannot be determined based on the information given.
Answer: C
Diff: 2
Page Ref: 339
Skill: Applied/Comprehensive/Integrative
42) A retailer's liabilities are very low relative to its assets. The retailer has ________.
A) low financial leverage
B) low fixed assets
C) high asset turnover
D) low net worth
Answer: A
Diff: 1
Page Ref: 339
Skill: Applied/Comprehensive/Integrative
43) A retailer has a return on net worth of 24 percent. If its asset turnover is 3 and its profit
margin is 4.0 percent, what is its financial leverage?
A) 2 times
B) 2 percent
C) 4 times
D) 4 percent
Answer: A
Diff: 1
Page Ref: 340
Skill: Applied/Comprehensive/Integrative

72

44) A difficulty with increasing a retailer's return on net worth through high financial leverage is
the ________.
A) possible loss in sales due to being out-of-stock on desirable merchandise
B) negative effect on net profit due to high inventory levels
C) uncertainty of repayment of interest and debt
D) high costs of stocking inventory
Answer: C
Diff: 2
Page Ref: 340
Skill: Applied/Comprehensive/Integrative
45) The quick ratio measures a retailer's ability to ________.
A) raise capital with a stock offering
B) earn a satisfactory profit
C) cover short-term debt
D) control operating expenses
Answer: C
Diff: 1
Page Ref: 340
Skill: Applied/Comprehensive/Integrative
46) A retailer with a high interest cost due to high financial leverage needs to carefully evaluate
its ________.
A) quick ratio
B) return on net worth
C) collection period
D) assets to net sales ratio
Answer: A
Diff: 2
Page Ref: 340
Skill: Applied/Comprehensive/Integrative
47) A firm has $400,000 in cash, $250,000 in accounts receivable, and $700,000 in current
liabilities. Its quick ratio is ________.
A) 0.36
B) 0.57
C) 0.93
D) 1.14
Answer: C
Diff: 1
Page Ref: 340
Skill: Applied/Comprehensive/Integrative
48) The basic difference between the quick ratio and the current ratio is that the ________.
A) quick ratio assumes that marketable securities can be quickly converted to cash
B) quick ratio is a more severe test
C) quick ratio assumes that inventories can be quickly converted to cash
D) current ratio measures only the most liquid assets
Answer: B
Diff: 2
Page Ref: 340
Skill: Applied/Comprehensive/Integrative
73

49) A retailer has $300,000 in cash, $500,000 in accounts receivable, $1,000,000 in inventories,
$400,000 in marketable securities, and $2,000,000 in total current liabilities. What is its current
ratio?
A) 0.15
B) 0.40
C) 1.100
D) 1.375
Answer: C
Diff: 1
Page Ref: 340
Skill: Applied/Comprehensive/Integrative
50) A retailer's net sales equals $300,000; its accounts receivable is $30,000. Its collection period
is approximately ________.
A) 10 days
B) 30 days
C) 36 days
D) 54 days
Answer: C
Diff: 1
Page Ref: 340
Skill: Applied/Comprehensive/Integrative
51) The collection period measures ________.
A) average grants to charitable institutions
B) the average time in court needed to get customers to pay late bills
C) how current a retailer is in paying its accounts payable
D) the average age of accounts receivable
Answer: D
Diff: 1
Page Ref: 340
Skill: Applied/Comprehensive/Integrative
52) A firm's collection period is 37 days; its overall terms are 30 days. This indicates ________.
A) slow-turning accounts receivable
B) fast-turning accounts receivable
C) average-turning accounts receivable
D) slow paying of accounts payable
Answer: C
Diff: 1
Page Ref: 340
Skill: Applied/Comprehensive/Integrative

74

53) A retailer typically has half of its sales on credit. Credit sales are payable in full within 30
days of the merchandise's sales. The retailer's collection period (based on total net sales) is 15
days. The retailer has ________.
A) slow-turning accounts receivable
B) average-turning accounts receivable
C) fast-turning accounts receivable
D) high financial leverage
Answer: B
Diff: 2
Page Ref: 340
Skill: Applied/Comprehensive/Integrative
54) A retailer has a collection period of 37 days. Its net sales equal $1,000,000. Its accounts
receivable equals ________.
A) $27,027
B) $36,000
C) $101,370
D) The answer cannot be determined from the information provided
Answer: C
Diff: 2
Page Ref: 340
Skill: Applied/Comprehensive/Integrative
55) A retailer can increase its accounts payable to net sales ratio by ________.
A) buying in large quantities
B) increasing its inventory turnover
C) paying accounts payable early to receive cash discounts
D) demanding longer payment terms from vendors
Answer: D
Diff: 2
Page Ref: 341
Skill: Applied/Comprehensive/Integrative
56) In a leveraged buyout, a firm's financial leverage ratio ________.
A) equals zero
B) equals 1
C) equals infinity
D) is a high number
Answer: D
Diff: 1
Page Ref: 343
Skill: Applied/Comprehensive/Integrative
57) A disadvantage associated with the use of leveraged buyouts is ________.
A) a high collection period
B) low asset turnover
C) the high debt-to-assets ratio
D) low return on net assets
Answer: C
Diff: 2
Page Ref: 343
Skill: Applied/Comprehensive/Integrative
75

58) The major difference between the top-down and the bottom-up budgeting process is
________.
A) whether the budget request is raised or lowered
B) the degree of centralization in the budgetary process
C) whether zero or incremental budgeting is used
D) the time interval between initial budget setting and the end of the budgetary process
Answer: B
Diff: 2
Page Ref: 346
Skill: Applied/Comprehensive/Integrative
59) Which budgeting process is most compatible with a management style that assumes that
employees can be self-managers?
A) zero-based
B) incremental
C) bottom-up
D) top-down
Answer: C
Diff: 2
Page Ref: 346
Skill: Applied/Comprehensive/Integrative
60) A multi-unit retailer seeks to determine the profitability of a number of stores located in the
Northeast. In calculating expenses by geographic area, the firm does not have to allocate which
expenses?
A) direct costs
B) opportunity costs
C) natural account expenses
D) variable costs
Answer: A
Diff: 1
Page Ref: 347
Skill: Applied/Comprehensive/Integrative
61) The discount division of a diversified retailer has revenues of $10,000,000, direct costs of
$8,000,000, and indirect costs of $3,000,000. What is the division's total profit?
A) -$1,000,000
B) $2,000,000
C) $5,000,000
D) Total profit cannot be determined based on the information provided
Answer: A
Diff: 2
Page Ref: 347
Skill: Applied/Comprehensive/Integrative

76

62) The discount division of a diversified retailer has revenues of $10,000,000, direct costs of
$8,000,000, and indirect costs of $3,000,000. What is the short-run impact of eliminating this
division?
A) The short-run profit will increase by $1,000,000.
B) The short-run profit will decrease by $2,000,000.
C) The short-run profit will decrease by $3,000,000.
D) The short-run impact cannot be determined based on the information provided.
Answer: B
Diff: 2
Page Ref: 347
Skill: Applied/Comprehensive/Integrative
63) The expense categories that appear on a profit-and-loss statement are ________ expenses.
A) direct
B) indirect
C) functional account
D) natural account
Answer: D
Diff: 1
Page Ref: 347
Skill: Applied/Comprehensive/Integrative
64) All expenditure levels are questioned in ________ budgeting.
A) bottom-up
B) top-down
C) incremental
D) zero-based
Answer: D
Diff: 1
Page Ref: 348
Skill: Applied/Comprehensive/Integrative
65) The major difference between zero-based and incremental budgeting is the ________.
A) use of a reference point in the budget process
B) degree of employee participation
C) use of top-down versus bottom-up processes
D) extent to which inflation is taken into account
Answer: A
Diff: 2
Page Ref: 348
Skill: Applied/Comprehensive/Integrative
66) Which natural expense category is charged as an expense in the period incurred, but does not
have a negative effect on cash flow?
A) depreciation
B) travel
C) media costs
D) equipment rentals
Answer: A
Diff: 2
Page Ref: 349, 347
Skill: Applied/Comprehensive/Integrative
77

67) Annual cash flow planning is especially difficult when a retailer ________.
A) uses quick response (QR) inventory planning
B) has high depreciation expense
C) buys merchandise on a consignment basis
D) has a highly seasonal business
Answer: D
Diff: 1
Page Ref: 349
Skill: Applied/Comprehensive/Integrative
68) Which expense is normally not in a retailer's cash flow budget?
A) interest expense
B) employee fringe benefits
C) drawing account
D) opportunity costs
Answer: D
Diff: 2
Page Ref: 349, 350
Skill: Applied/Comprehensive/Integrative
69) A retailer opened 10 new home appliance stores. The same resources could have been used to
expand its 15 existing stores into category killer stores. While the retailer earned $600,000 last
year, it figures it could have earned $1,000,000 if it went with the larger store alternative. Its
opportunity costs last year were ________.
A) $400,000
B) $600,000
C) $1,600,000
D) The answer cannot be determined based on the information provided
Answer: A
Diff: 2
Page Ref: 350
Skill: Applied/Comprehensive/Integrative
70) A retailer assigns a return on investment of 10 percent on the value of its company-owned
warehouse. This illustrates which concept?
A) asset turnover
B) incremental budgeting
C) opportunity costs
D) prototype store
Answer: C
Diff: 2
Page Ref: 350
Skill: Applied/Comprehensive/Integrative
71) A low overall gross margin may mean that a firm's operating expenses are too high.
Answer: FALSE
Diff: 2
Page Ref: 336
Skill: Terminology/Concept

78

72) A retailer's net worth is computed as its assets less its fixed liabilities.
Answer: FALSE
Diff: 1
Page Ref: 338
Skill: Terminology/Concept
73) A low assets to net sales ratio represents the use of debt to finance acquisitions, growth, or
stock repurchase.
Answer: FALSE
Diff: 2
Page Ref: 339
Skill: Terminology/Concept
74) A retailer that can double its asset turnover, while keeping its profit margin constant, doubles
its return on assets.
Answer: TRUE
Diff: 2
Page Ref: 338
Skill: Terminology/Concept
75) A retailer's return on net worth is based upon its asset turnover, net profit margin, and
financial leverage.
Answer: TRUE
Diff: 1
Page Ref: 339
Skill: Terminology/Concept
76) While too little a financial leverage figure represents overly conservative management, too
high a figure represents high risk.
Answer: TRUE
Diff: 2
Page Ref: 339
Skill: Terminology/Concept
77) A firm's quick and current ratios are both measures of long-term debt levels.
Answer: FALSE
Diff: 1
Page Ref: 340
Skill: Terminology/Concept
78) A firm's collection period needs to be evaluated on the basis of its percent of credit sales.
Answer: FALSE
Diff: 2
Page Ref: 340
Skill: Terminology/Concept
79) Leveraged buyouts (LBOs) are characterized by high debt.
Answer: TRUE
Diff: 1
Page Ref: 343
Skill: Terminology/Concept

79

80) Top-down budgeting represents a decentralized budgetary process.


Answer: FALSE
Diff: 2
Page Ref: 346
Skill: Terminology/Concept
81) Indirect costs are traceable to a profit center while direct costs must be allocated on the basis
of judgment.
Answer: FALSE
Diff: 2
Page Ref: 347
Skill: Terminology/Concept
82) In incremental budgeting, a firm starts each budget period with a zero figure.
Answer: FALSE
Diff: 1
Page Ref: 348
Skill: Terminology/Concept
83) A retailer's cash flow for a period is equal to its sales revenue for the same period.
Answer: FALSE
Diff: 2
Page Ref: 349
Skill: Terminology/Concept
84) Opportunity costs represent foregone income.
Answer: TRUE
Diff: 1
Page Ref: 350
Skill: Terminology/Concept
85) The concept of opportunity costs is based on recognizing that a firm's financial resources are
finite.
Answer: TRUE
Diff: 1
Page Ref: 350
Skill: Terminology/Concept
86) A retailer's asset turnover is four times; its profit margin equals four percent. Its return on
assets is four percent.
Answer: FALSE
Diff: 1
Page Ref: 336
Skill: Applied/Comprehensive/Integrative
87) While a retailer's overall gross margin is high, its net profit margin is low. This indicates that
the retailer should reevaluate its use of markdowns.
Answer: FALSE
Diff: 2
Page Ref: 336, 338
Skill: Applied/Comprehensive/Integrative

80

88) A firm that has been involved in a leveraged buyout (LBO) has low financial leverage.
Answer: FALSE
Diff: 2
Page Ref: 339, 343
Skill: Applied/Comprehensive/Integrative
89) The strategic profit model equals return on net worth.
Answer: TRUE
Diff: 1
Page Ref: 340
Skill: Applied/Comprehensive/Integrative
90) A firm's current ratio is always higher than its quick ratio (for the same accounting period).
Answer: TRUE
Diff: 2
Page Ref: 340
Skill: Applied/Comprehensive/Integrative
91) A slow collection period may indicate bad debts.
Answer: TRUE
Diff: 2
Page Ref: 340
Skill: Applied/Comprehensive/Integrative
92) A firm has accounts receivable of $400,000 and net sales of $2,000,000. Its collection period
is five days.
Answer: FALSE
Diff: 2
Page Ref: 340
Skill: Applied/Comprehensive/Integrative
93) A retailer can decrease its collection period by stressing that its customers use retailergenerated credit cards.
Answer: FALSE
Diff: 2
Page Ref: 340
Skill: Applied/Comprehensive/Integrative
94) A low accounts payable to net sales ratio may indicate that a firm's suppliers grant liberal
credit terms.
Answer: FALSE
Diff: 2
Page Ref: 341
Skill: Applied/Comprehensive/Integrative
95) A leveraged buyout (LBO) retailer has high assets relative to net worth.
Answer: TRUE
Diff: 1
Page Ref: 343
Skill: Applied/Comprehensive/Integrative

81

96) Top-down budgeting reflects a style of supervising retail employees that assumes that
employees lack ambition and dislike responsibility.
Answer: TRUE
Diff: 2
Page Ref: 346
Skill: Applied/Comprehensive/Integrative
97) The major difference between top-down and bottom-up budgeting is based upon the direction
of the flow of information.
Answer: TRUE
Diff: 2
Page Ref: 346
Skill: Applied/Comprehensive/Integrative
98) Total retailing expenses can be best analyzed when they are tabulated on the basis of natural
account expenses.
Answer: FALSE
Diff: 2
Page Ref: 347
Skill: Applied/Comprehensive/Integrative
99) Zero-based budgeting requires greater justification than incremental-based budgeting.
Answer: TRUE
Diff: 2
Page Ref: 348
Skill: Applied/Comprehensive/Integrative
100) Opportunity costs are reflected in a profit-and-loss statement.
Answer: FALSE
Diff: 2
Page Ref: 350-351
Skill: Applied/Comprehensive/Integrative
101) Describe the relationship among each of the components of the strategic profit model.
Diff: 1
Page Ref: 340
102) Explain how each of the components of the strategic profit model can be improved. Be
specific.
Diff: 2
Page Ref: 340, 338-339
103) A retailer compared his/her key business ratios with data available from secondary sources.
The retailer noted poorer than average performance on the following ratios: quick ratio, accounts
payable to net sales, and return on net worth. Develop specific recommendations to improve the
performance on these ratios.
Diff: 2
Page Ref: 340-341
104) a.
Differentiate between the current ratio and the quick ratio.
b. Why is a 1 to 1 ratio acceptable for a quick ratio, yet a 2 to 1 ratio is considered satisfactory
for the current ratio?
Diff: 2
Page Ref: 340

82

105) a.
Describe five specific strategies that a retailer can use to improve its collection
period.
b. List the pros and cons of each strategy.
Diff: 1
Page Ref: 340
106) a.
Why have so many leveraged buyouts (LBOs) involved retailers?
b. What has been the impact of LBOs on retailing?
Diff: 2
Page Ref: 343
107) Discuss three important financial trends that relate to retailing.
Diff: 1
Page Ref: 342-345
108) a.
Describe the relative advantages and disadvantages of top-down and bottom-up
budgeting.
b. Describe the relationship of top-down and bottom-up budgeting to contrasting styles of
supervising employees.
Diff: 1
Page Ref: 346, 332
109) a.
Explain the difficulties of determining the profitability of a retail division with a
high proportion of indirect expenses.
b. Explain the relationship of natural account expenses and functional account expenses.
Diff: 2
Page Ref: 347
110) a.
Differentiate between zero-based and incremental budgeting.
b. Under what conditions would you use each technique?
Diff: 1
Page Ref: 348
111) A major department store needs to improve its cash flow to insure the prompt payment of its
debt. Develop a strategy to improve cash flow through key cash usage and inflow areas.
Diff: 2
Page Ref: 349
112) a.
Discuss five methods of improving retail productivity (nonpersonnel related).
b. What are the risks inherent in each method?
Diff: 2
Page Ref: 351

83

Chapter 13
1) A retailer can list all of its operations to be performed, its characteristics, and its timing in a(n)
________.
A) prototype arrangement
B) standardized plan
C) operations blueprint
D) rationalized retailing arrangement
Answer: C
Diff: 1
Page Ref: 356
Skill: Terminology/Concept
2) Which of the following is not an advantage of an operations blueprint?
A) The operations blueprint standardizes activities.
B) The operations blueprint helps evaluate personnel needs.
C) The operations blueprint determines space needs.
D) The operations blueprint isolates weak or failure-prone operations components.
Answer: C
Diff: 2
Page Ref: 356
Skill: Terminology/Concept
3) Uniform construction, layout, and operations standards are used in ________.
A) everyday inventory planning
B) prototype stores
C) crisis management
D) scrambled merchandising
Answer: B
Diff: 1
Page Ref: 358
Skill: Terminology/Concept
4) Which of these is not a benefit of using prototype stores?
A) The stores use custom buildings for each city and town.
B) The stores enable a retailer to take advantage of quantity discounts for fixtures and other
materials.
C) The stores ease the employee interchange among branches.
D) The stores help portray a consistent image among franchise and chain store units.
Answer: A
Diff: 2
Page Ref: 358
Skill: Terminology/Concept

84

5) Rationalized retailing is often used in conjunction with ________.


A) micro-merchandising
B) prototype stores
C) a top-down space management approach
D) a bottom-up space management approach
Answer: B
Diff: 1
Page Ref: 358
Skill: Terminology/Concept
6) A characteristic of rationalized retailing programs is the ________.
A) encouragement of manufacturers to finance inventories
B) use of low-cost rental locations
C) use of used equipment and fixtures
D) high degree of centralized management control
Answer: D
Diff: 1
Page Ref: 358
Skill: Terminology/Concept
7) Rigid control and standardization for each phase of business characterize ________.
A) mass merchandising
B) rationalized retailing
C) positioned retailing
D) risk-minimization retailing
Answer: B
Diff: 2
Page Ref: 358
Skill: Terminology/Concept
8) Which of these is not a characteristic of a rationalized retailing strategy?
A) the use of prototype stores
B) the use of rigorous operating procedures for every phase of the business
C) decentralized management
D) a common store layout to all store units
Answer: C
Diff: 2
Page Ref: 358
Skill: Terminology/Concept
9) With the top-down space management approach, a retailer starts with ________.
A) total available store space
B) the space requirements for specific products
C) central management dictates
D) a prototype store's plans
Answer: A
Diff: 1
Page Ref: 359
Skill: Terminology/Concept

85

10) The need for store personnel in a season, week, day, and time period is ascertained through
________.
A) job standardization
B) workload forecasts
C) cross-training
D) time-based performance adjustments
Answer: B
Diff: 1
Page Ref: 360
Skill: Terminology/Concept
11) The tasks of personnel with similar positions in different departments are kept rather uniform
with ________.
A) job standardization
B) rationalized retailing
C) risk-minimization retailing
D) management-by-objectives
Answer: A
Diff: 1
Page Ref: 360
Skill: Terminology/Concept
12) With cross-training, personnel ________.
A) are trained to sell in self-service facilities
B) have clear performance standards
C) learn tasks associated with more than one job
D) are encouraged to engage in long-term employment in the firm
Answer: C
Diff: 1
Page Ref: 360
Skill: Terminology/Concept
13) Which of these is a not a major advantage of cross-training?
A) the ability to shift employees during peak sales periods
B) lower employee boredom
C) lower overall staffing needs during peak sales periods
D) lower overall personnel training costs
Answer: D
Diff: 2
Page Ref: 360
Skill: Terminology/Concept
14) Through ________, an employee can be easily shifted from stockperson to cashier as the
need arises.
A) cross-training
B) rationalized retailing
C) risk-minimization retailing
D) job standardization
Answer: A
Diff: 1
Page Ref: 360
Skill: Terminology/Concept
86

15) The use of in-store displays and the sale of well-known national brands can effectively
reduce selling costs through use of ________.
A) self-service facilities
B) just-in-time (JIT) inventory management
C) vertical merchandising
D) prototype stores
Answer: A
Diff: 1
Page Ref: 361
Skill: Terminology/Concept
16) Supermarkets and full-line discount stores have effectively reduced personnel costs through
the use of ________.
A) self-service facilities
B) prototype stores
C) vertical merchandising
D) just-in-time inventory management
Answer: A
Diff: 1
Page Ref: 361
Skill: Terminology/Concept
17) All of the activities involved in managing the retailer's physical facilities comprise
________.
A) merchandising
B) operations management
C) energy management
D) store maintenance
Answer: D
Diff: 1
Page Ref: 361
Skill: Terminology/Concept
18) Which statement about energy management is not correct?
A) A retailer can reduce energy costs through adjusting a store's interior temperatures during
nonselling hours.
B) The substitution of traditional bulbs with high-energy bulbs and fluorescent ballasts can
significantly reduce energy costs for lighting.
C) The potential savings to a retailer with an effective energy management program are quite
low.
D) Computerized systems with centralized controls that enable a retailer to control lighting, heat,
and air-conditioning in each store from a single office can reduce heating, air-conditioning, and
ventilating costs.
Answer: C
Diff: 2
Page Ref: 362
Skill: Terminology/Concept

87

19) A retailer seeks to acquire and maintain a proper assortment of merchandise while ensuring
that operations are efficient and effective in ________.
A) retail operations
B) just-in-time (JIT) inventory planning
C) store maintenance
D) inventory management
Answer: D
Diff: 1
Page Ref: 363
Skill: Terminology/Concept
20) Ordering costs, holding costs, and loss in profits due to stockouts are effectively controlled in
________.
A) prototype stores
B) incremental budgeting
C) zero-based budgeting
D) inventory management
Answer: D
Diff: 2
Page Ref: 363
Skill: Terminology/Concept
21) Store security relates to two issues: ________ and ________.
A) inventory security; cash security
B) employee security; manager security
C) personal security; merchandise security
D) employee security; customer security
Answer: C
Diff: 1
Page Ref: 364
Skill: Terminology/Concept
22) What type of insurance protects retailers from claims due to customers falling due to a wet
floor or loose carpeting?
A) directors' liability
B) workers' compensation
C) public liability
D) product liability
Answer: C
Diff: 2
Page Ref: 365
Skill: Terminology/Concept

88

23) Credit-card fees paid by retailers average from ________ percent to ________ percent of
sales.
A) 1.5; 5
B) 2.5; 3.5
C) 3.5; 5
D) 5; 6
Answer: A
Diff: 1
Page Ref: 365
Skill: Terminology/Concept
24) In a debit card system, the ________.
A) retailer still has the risk of customer nonpayment
B) purchase price is immediately deducted from a consumer's bank account and then entered into
the retailer's account
C) customer can either pay the full amount due immediately or defer payment
D) customer is not billed until his or her billing cycle date
Answer: B
Diff: 1
Page Ref: 356
Skill: Terminology/Concept
25) A significant advantage to a consumer of a credit card system in comparison to a debit card
system is ________.
A) the delayed payment benefit
B) tightened privacy
C) higher security
D) lower cost
Answer: A
Diff: 2
Page Ref: 356
Skill: Terminology/Concept
26) Computerized checkouts are generally used in conjunction with ________.
A) electronic article surveillance
B) quick response inventory management
C) logistics systems
D) Universal Product Code-based systems
Answer: D
Diff: 1
Page Ref: 367-368
Skill: Terminology/Concept
27) Which statement concerning computerized checkouts is not correct?
A) Computerized checkouts instantly record and display sales.
B) Computerized checkouts cannot store inventory data.
C) Computerized checkouts can reduce transaction time.
D) Computerized checkouts can reduce the need for item pricing.
Answer: B
Diff: 2
Page Ref: 367-368
Skill: Terminology/Concept
89

28) Which statement concerning electronic point-of-sale systems is not correct?


A) Electronic point-of-sale systems perform all of the tasks of a computerized checkout.
B) Electronic point-of-sale systems can verify check and charge transactions.
C) Electronic point-of-sale systems are always integrated with a retailer's in-store or headquarters
computer.
D) Electronic point-of-sale systems can provide instantaneous sales reports.
Answer: C
Diff: 2
Page Ref: 368
Skill: Terminology/Concept
29) A major advantage associated with self-scanning to a retailer is ________.
A) the ability to do away with all cashiers
B) lower pilferage losses
C) increased control over alcohol and tobacco sales
D) lower labor costs
Answer: D
Diff: 1
Page Ref: 369
Skill: Terminology/Concept
30) Which system increases employee productivity for supermarkets?
A) debit-card system
B) self-scanning
C) outsourcing
D) data-base management
Answer: B
Diff: 2
Page Ref: 369
Skill: Terminology/Concept
31) A retailer has an outside party to undertake one or more of its operating functions in
________.
A) outsourcing
B) benchmarking
C) re-engineering
D) scenario analysis
Answer: A
Diff: 1
Page Ref: 369
Skill: Terminology/Concept
32) A Web-based retailer has decided to have a logistics firm handle packing, handling, and
shipping responsibilities. This illustrates ________.
A) outsourcing
B) benchmarking
C) re-engineering
D) scenario analysis
Answer: A
Diff: 1
Page Ref: 369
Skill: Terminology/Concept
90

33) The use of a third-party firm handling a retailer's payroll illustrates ________.
A) outsourcing.
B) electronic article surveillance
C) self-scanning.
D) crisis management.
Answer: A
Diff: 1
Page Ref: 369
Skill: Terminology/Concept
34) Contingency plans are an important component of ________.
A) operations management
B) crisis management
C) control activities
D) feedback
Answer: B
Diff: 2
Page Ref: 370
Skill: Terminology/Concept
35) Planning for contingencies such as strikes, earthquakes, and lack of electricity is part of
________.
A) insurance coverage
B) crisis management
C) reinsurance
D) productivity management
Answer: B
Diff: 1
Page Ref: 370
Skill: Terminology/Concept
36) A listing and sequencing of interrelated tasks that must be performed by several retail
personnel to assure that a retail service is efficiently and effectively performed is an important
part of a(n) ________.
A) operations blueprint
B) workload forecast
C) job standardization analysis
D) cross-training analysis
Answer: A
Diff: 2
Page Ref: 356
Skill: Applied/Comprehensive/Integrative

91

37) Based upon an analysis of selected retail tasks that need to be performed in a given time
period, a retailer decided to rely on self-service. This illustrates the effective use of a(n)
________.
A) workload forecast
B) operations blueprint
C) job standardization analysis
D) cross-training analysis
Answer: B
Diff: 2
Page Ref: 356
Skill: Applied/Comprehensive/Integrative
38) The standardization of retail operations is often associated with the use of ________.
A) participatory management
B) unionization by employees
C) decentralized decision making
D) prototype stores
Answer: D
Diff: 1
Page Ref: 358
Skill: Applied/Comprehensive/Integrative
39) The use of prototype stores is commonly associated with ________.
A) independent retailers
B) leased departments
C) chain retailers
D) retail cooperatives
Answer: C
Diff: 1
Page Ref: 358
Skill: Applied/Comprehensive/Integrative
40) A major difficulty with the use of prototype stores is the ________.
A) inconsistent store image
B) higher purchase costs for fixtures
C) inflexibility in dealing with special site characteristics
D) difficulty in applying standardized operating cost controls to different locations
Answer: C
Diff: 2
Page Ref: 358
Skill: Applied/Comprehensive/Integrative
41) Rationalized retailing is often conducted in conjunction with ________.
A) micro-merchandising
B) electronic data interchange (EDI)
C) decentralized management
D) prototype stores
Answer: D
Diff: 2
Page Ref: 358
Skill: Applied/Comprehensive/Integrative

92

42) Centralized decision making is generally associated with ________.


A) micro-merchandising
B) risk-maximization retailing
C) rationalized retailing
D) category management
Answer: C
Diff: 2
Page Ref: 358
Skill: Applied/Comprehensive/Integrative
43) A major advantage to the use of rationalized retailing programs is the ________.
A) low investment
B) ease of expanding the number of retail facilities
C) appeal to a well-defined market target
D) spreading of risk due to diversification
Answer: B
Diff: 1
Page Ref: 358
Skill: Applied/Comprehensive/Integrative
44) A significant disadvantage to the use of rationalized retailing is the ________.
A) high operating costs associated with standardization
B) poor possible fit with consumer preferences in all geographic markets
C) loss of quantity discounts through volume purchasing
D) need for more personnel due to decentralized decisions
Answer: B
Diff: 2
Page Ref: 358
Skill: Applied/Comprehensive/Integrative
45) The opposite strategy to rationalized retailing is ________.
A) micro-merchandising
B) centralized management
C) risk-minimization retailing
D) category management
Answer: A
Diff: 2
Page Ref: 358
Skill: Applied/Comprehensive/Integrative
46) A characteristic associated with the bottom-up space management approach is ________.
A) retail space costs may be high
B) the total space available may be less than that required by the plan
C) planning is centralized
D) that the needs of scrambled merchandising may not be met
Answer: B
Diff: 2
Page Ref: 360
Skill: Applied/Comprehensive/Integrative

93

47) Which of the following does not contribute to the difficulty in planning personnel utilization
in retailing?
A) high employee turnover
B) self-service merchandising
C) inflexibility due to union issues
D) large shifts in demand due to seasonality
Answer: B
Diff: 2
Page Ref: 360
Skill: Applied/Comprehensive/Integrative
48) The opposite of extreme employee specialization is ________.
A) cross-training
B) self-service merchandising
C) job standardization
D) automation
Answer: A
Diff: 2
Page Ref: 360
Skill: Applied/Comprehensive/Integrative
49) The cross-training of employees is particularly beneficial when a retailer ________.
A) has extreme seasonality
B) is open for short hours
C) is open for long hours
D) has loyal part-time workers
Answer: A
Diff: 2
Page Ref: 360
Skill: Applied/Comprehensive/Integrative
50) Poor morale and boredom caused by extreme specialization can be overcome by ________.
A) rationalized retailing
B) the use of prototype stores
C) job specialization
D) cross-training
Answer: D
Diff: 1
Page Ref: 360
Skill: Applied/Comprehensive/Integrative
51) A retailer with high seasonality can best reduce its labor costs in the peak season through
________.
A) job standardization
B) carefully screening employees
C) developing employee performance standards
D) cross-training and developing self-service options for consumers
Answer: D
Diff: 2
Page Ref: 360
Skill: Applied/Comprehensive/Integrative

94

52) The most appropriate financial performance standard for a department store retail buyer is
________.
A) customer satisfaction
B) total unit sales
C) total dollar gross profit in a department
D) total dollar sales
Answer: C
Diff: 2
Page Ref: 360
Skill: Applied/Comprehensive/Integrative
53) A retailer can encourage long-term employment by ________.
A) using job standardization
B) utilizing self-service facilities
C) adhering to a promotion-from-within philosophy
D) developing clear employee performance standards
Answer: C
Diff: 2
Page Ref: 361
Skill: Applied/Comprehensive/Integrative
54) A firm organizes its store maintenance operations on the basis of location. Which method of
classifying jobs does the firm use?
A) product classification
B) functional classification
C) geographic classification
D) combination organization client
Answer: C
Diff: 2
Page Ref: 361-362
Skill: Applied/Comprehensive/Integrative
55) Which of the following energy management strategies is most likely to have a negative
impact on a retailer's atmosphere?
A) centrally managing lighting levels by each department by time of day to better reflect outside
lighting conditions
B) replacing an older central air-conditioning system with a new efficient unit that requires 150
tons less capacity
C) installing high efficiency fluorescent bulbs in place of incandescent light bulbs
D) raising the temperature thermostat from 72 degrees in the summer to 74 degrees
Answer: D
Diff: 1
Page Ref: 361-362
Skill: Applied/Comprehensive/Integrative

95

56) A retailer can reduce its bad debt on credit sales to zero by ________.
A) using third-party credit plans and debit cards
B) developing and implementing a systematic credit authorization plan
C) developing high fees for nonpayment
D) limiting credit sales to the best credit risks
Answer: A
Diff: 1
Page Ref: 365-366
Skill: Applied/Comprehensive/Integrative
57) Inventory management programs can be facilitated through the use of ________.
A) item analysis
B) electronic article surveillance
C) computerized checkouts
D) electronic signature capture
Answer: C
Diff: 2
Page Ref: 367
Skill: Applied/Comprehensive/Integrative
58) Store security relates to both ________.
A) insurance and personal security
B) personal security and merchandise security
C) crisis management and pilferage control
D) safety management and crisis management
Answer: B
Diff: 1
Page Ref: 364
Skill: Applied/Comprehensive/Integrative
59) Which type of insurance most directly affects employees?
A) property damage
B) directors' liability
C) public liability
D) workers' compensation
Answer: D
Diff: 2
Page Ref: 365
Skill: Applied/Comprehensive/Integrative
60) Board members of public corporations can be liable for their actions that may result in the
loss in value of the retailer's stock. To cover this potential loss, retailers typically provide them
with ________ insurance.
A) property damage
B) directors' and officers' liability
C) public liability
D) workers' compensation
Answer: B
Diff: 2
Page Ref: 365
Skill: Applied/Comprehensive/Integrative

96

61) A retailer selling products that are potentially dangerous due to misuse or manufacturer
defects should get ________ insurance.
A) property damage
B) public liability
C) product liability
D) workers' compensation
Answer: C
Diff: 2
Page Ref: 365
Skill: Applied/Comprehensive/Integrative
62) An advantage of a retailer's maintaining its own credit card plan is ________.
A) lower bad debt loss
B) economies of scale
C) ease of management
D) ability to be more flexible in demanding repayment
Answer: D
Diff: 2
Page Ref: 365-366
Skill: Applied/Comprehensive/Integrative
63) Security and privacy issues are greatest among ________.
A) debit card systems
B) credit card systems
C) retailer-based credit cards
D) bank-based credit cards
Answer: D
Diff: 2
Page Ref: 365-366
Skill: Applied/Comprehensive/Integrative
64) Which form of credit management system most closely resembles a check?
A) retailer-based credit system
B) debit management system
C) Discover Card
D) MasterCard Express
Answer: B
Diff: 2
Page Ref: 365-366
Skill: Applied/Comprehensive/Integrative
65) A retailer can reduce its bad debt on credit sales to zero through ________.
A) using third-party credit plans and debit cards
B) developing and implementing a systematic credit authorization plan
C) developing high fees for nonpayment
D) limiting credit sales to the best credit risks
Answer: A
Diff: 1
Page Ref: 365-366
Skill: Applied/Comprehensive/Integrative

97

66) A retailer is concerned about such issues as trade-offs between faster delivery times from
suppliers and higher shipping costs and support from suppliers in storing merchandise. These
issues concern ________.
A) store security
B) inventory management
C) crisis management
D) outsourcing
Answer: B
Diff: 1
Page Ref: 367
Skill: Applied/Comprehensive/Integrative
67) The major difference between computerized checkouts and electronic point-of-sale systems
is that electronic point-of-sale systems ________.
A) are not tied into the retailer's main computer
B) do not have the capacity to print complex reports
C) are not compatible with UPC scanners
D) also verify, monitor, and change prices, as well as provide sales reports
Answer: D
Diff: 2
Page Ref: 367-368
Skill: Applied/Comprehensive/Integrative
68) Almost all electronic point-of-sale systems rely on ________.
A) videoconferencing
B) customer data bases
C) Universal Product Codes (UPC)
D) Electronic data interchange (EDI)
Answer: C
Diff: 2
Page Ref: 368
Skill: Applied/Comprehensive/Integrative
69) A retailer shifting from a retailer-based credit card system to a bank-based credit card system
illustrates ________.
A) resizing
B) self-service operations
C) downsizing
D) outsourcing
Answer: D
Diff: 2
Page Ref: 369, 365-366
Skill: Applied/Comprehensive/Integrative

98

70) Contingency planning for no store electricity, vendors being out-of -stock on key items, and
strikes need to be considered in ________.
A) crisis management
B) insurance planning
C) expense allocation
D) budget planning
Answer: A
Diff: 1
Page Ref: 370-371
Skill: Applied/Comprehensive/Integrative
71) Prototype stores allow each outlet to utilize standardized operating procedures, reduce
construction costs, and reinforce a consistent chain image.
Answer: TRUE
Diff: 1
Page Ref: 35
Skill: Terminology/Concept
72) There are generally cost advantages associated with the use of prototype stores.
Answer: TRUE
Diff: 2
Page Ref: 358
Skill: Terminology/Concept
73) Prototype stores are commonly associated with business format franchising.
Answer: TRUE
Diff: 2
Page Ref: 358
Skill: Terminology/Concept
74) The top-down approach to space management involves less employee participation than the
bottom-up approach to space management.
Answer: FALSE
Diff: 2
Page Ref: 359
Skill: Terminology/Concept
75) Generally, there are few differences in human resource management procedures and
strategies in unionized versus nonunionized retailers.
Answer: FALSE
Diff: 1
Page Ref: 360-361
Skill: Terminology/Concept
76) Job standardization and cross-training are techniques designed to increase personnel
flexibility.
Answer: TRUE
Diff: 2
Page Ref: 360
Skill: Terminology/Concept

99

77) To the extent possible, each retail employee should have clear performance standards and be
accountable for attaining them.
Answer: TRUE
Diff: 1
Page Ref: 360
Skill: Terminology/Concept
78) The percent of cashier misrings is an example of a performance standard for a cashier.
Answer: TRUE
Diff: 1
Page Ref: 360
Skill: Terminology/Concept
79) A retailer can encourage long-term employment through a policy of promoting from within
the firm.
Answer: TRUE
Diff: 1
Page Ref: 361
Skill: Terminology/Concept
80) A firm cannot improve employee productivity through self-service merchandising.
Answer: FALSE
Diff: 2
Page Ref: 361
Skill: Terminology/Concept
81) Productivity gains through effective retailer-based energy management programs have been
quite small.
Answer: FALSE
Diff: 1
Page Ref: 362
Skill: Terminology/Concept
82) A retailer can increase the effectiveness of its inventory management by maintaining lower
inventory levels.
Answer: FALSE
Diff: 2
Page Ref: 363
Skill: Terminology/Concept
83) A comprehensive store security program needs to address both personal security and
merchandise security.
Answer: TRUE
Diff: 1
Page Ref: 364
Skill: Terminology/Concept
84) In a credit management program, a retailer generally needs to balance the ability of credit to
generate additional revenues against the cost of processing credit payments (including bad
debts).
Answer: TRUE
Diff: 1
Page Ref: 365
Skill: Terminology/Concept

100

85) Since all crises cannot be anticipated, it is important that a retailer establish appropriate
contingency plans.
Answer: TRUE
Diff: 2
Page Ref: 370-371
Skill: Terminology/Concept
86) Prototype stores are often used in conjunction with micro-merchandising.
Answer: FALSE
Diff: 2
Page Ref: 358
Skill: Applied/Comprehensive/Integrative
87) Prototype stores and rationalized retailing generally are used in association with
decentralized management.
Answer: FALSE
Diff: 2
Page Ref: 358
Skill: Applied/Comprehensive/Integrative
88) Rationalized retailing enables shoppers to more quickly locate merchandise among various
units of a class.
Answer: TRUE
Diff: 2
Page Ref: 358
Skill: Applied/Comprehensive/Integrative
89) Micro-merchandising is compatible with rationalized retailing.
Answer: FALSE
Diff: 2
Page Ref: 358
Skill: Applied/Comprehensive/Integrative
90) A top-down space management approach to planning is based on decentralized operations
planning.
Answer: FALSE
Diff: 2
Page Ref: 359
Skill: Applied/Comprehensive/Integrative
91) A bottom-up space management approach is based upon participative management.
Answer: TRUE
Diff: 2
Page Ref: 360
Skill: Applied/Comprehensive/Integrative
92) Retailers with level sales (by hour and/or day) need to be particularly concerned with
planning and implementing workload forecasts and cross-training.
Answer: FALSE
Diff: 1
Page Ref: 360
Skill: Applied/Comprehensive/Integrative

101

93) A retailer can increase employee productivity through cross-training.


Answer: TRUE
Diff: 2
Page Ref: 360
Skill: Applied/Comprehensive/Integrative
94) A retailer can increase the economic life of an asset through effective store maintenance.
Answer: TRUE
Diff: 2
Page Ref: 361-363
Skill: Applied/Comprehensive/Integrative
95) Store maintenance and energy management are synonymous concepts.
Answer: FALSE
Diff: 2
Page Ref: 361-363
Skill: Applied/Comprehensive/Integrative
96) One objective of an energy management system is to reduce energy costs through the
purchase of efficient heating, air-conditioning, and ventilating equipment.
Answer: TRUE
Diff: 2
Page Ref: 361-363
Skill: Applied/Comprehensive/Integrative
97) The full cost of many energy management renovations can rarely be recouped through lower
annual energy costs.
Answer: FALSE
Diff: 1
Page Ref: 361-363
Skill: Applied/Comprehensive/Integrative
98) Insurance companies can often reduce accident rates through a safety audit of a retailer's
facilities.
Answer: TRUE
Diff: 2
Page Ref: 365
Skill: Applied/Comprehensive/Integrative
99) A retailer can shift credit management responsibilities to others via the use of third-party
credit organizations (such as MasterCard and/or Visa) or through the use of debit cards.
Answer: TRUE
Diff: 2
Page Ref: 365-366
Skill: Applied/Comprehensive/Integrative
100) All crises affecting a retailer can be anticipated.
Answer: FALSE
Diff: 2
Page Ref: 370-371
Skill: Applied/Comprehensive/Integrative
101) Develop an operations blueprint for a car wash specializing in a one-hour "while-you-wait"
inexpensive detailing of vehicles.
Diff: 2
Page Ref: 356-357
102

102) a.
Explain how the use of prototype stores can result in significant improvements in
productivity.
b. What are the risks that are inherent in the use of prototype stores?
Diff: 1
Page Ref: 358
103) What are the advantages and disadvantages of rationalized retailing programs?
Diff: 1
Page Ref: 358
104) What are the advantages and disadvantages of a top-down versus a bottom-up space
management program?
Diff: 1
Page Ref: 359-360
105) a.
Develop a workload forecast for a photo studio shop with highly variable demand.
b. How should the photo studio plan to staff its operation during weekend hours when workloads
peak and personnel availability is low?
Diff: 2
Page Ref: 360
106) a.
What is the relationship among job standardization, cross-training, and workload
forecasting?
b. Under what conditions should cross-training be used by a retailer?
Diff: 1
Page Ref: 360
107) Develop an energy management checklist for an off-price independent retailer which
utilizes an isolated retail location. Be sure to focus on lighting, heating, and air-conditioning.
Diff: 2
Page Ref: 361-362
108) Develop a personal security program for a shopping center that is open until 12:00 midnight
during peak sales periods (such as Christmas).
Diff: 2
Page Ref: 364
109) a.
Under what circumstances should a retailer maintain its own credit card
operation?
b. Under what circumstances should a retailer outsource credit management to a third party?
Diff: 2
Page Ref: 365-366
110) How can a retailer increase its productivity through the use of point-of-sale computer-based
systems?
Diff: 1
Page Ref: 366-368
111) Describe five types of management reports that can be generated through the use of an
electronic-point-of-sale system.
Diff: 1
Page Ref: 368
112) a.
Identify three potential contingencies for which an electronics retailer needs a
crisis management plan. Explain.
b. Develop a crisis management plan for one of these contingencies.
Diff: 2
Page Ref: 370
103

Chapter 14
1) All of the activities involved in acquiring particular goods and/or services and making them
available at the places, times, prices, and quantities that will enable the firm to reach its goals
comprise ________.
A) merchandising
B) financial merchandise management
C) retail pricing
D) a centralized buying organization
Answer: A
Diff: 1
Page Ref: 384
Skill: Terminology/Concept
2) A major characteristic of micromerchandising is the ________.
A) lower costs through quantity discounts
B) use of rationalized retailing
C) appeal to local tastes
D) use of the top-down approach to space management
Answer: C
Diff: 2
Page Ref: 386
Skill: Terminology/Concept
3) Which retail merchandising strategy reflects the need to appeal to specific target markets
through different product offerings?
A) rationalized retailing
B) micromerchandising
C) battle of the brands
D) cross selling
Answer: B
Diff: 2
Page Ref: 386
Skill: Terminology/Concept
4) Which merchandising strategy is similar to scrambled merchandising?
A) cross-merchandising
B) micromerchandising
C) cross selling
D) rationalized retailing
Answer: A
Diff: 2
Page Ref: 387
Skill: Terminology/Concept

104

5) A formal buying organization is characterized by ________.


A) the same personnel handling merchandising and other retail functions
B) low organizational costs
C) the merchandising function being a separate department
D) flexibility in organizational design
Answer: C
Diff: 1
Page Ref: 387
Skill: Terminology/Concept
6) Informal buying organizations are most likely to be found in ________.
A) major retail chains
B) franchisors
C) small independents
D) specialty chains
Answer: C
Diff: 1
Page Ref: 387
Skill: Terminology/Concept
7) In a centralized buying organization, ________.
A) all purchases emanate from one office
B) purchase decisions are made at local store units
C) local units have freedom in buying, but must use approved vendors
D) purchase decisions are made at the regional level
Answer: A
Diff: 2
Page Ref: 388
Skill: Terminology/Concept
8) A major advantage of centralized buying for a retailer is ________.
A) the increased role of branch stores
B) greater fit with regional trends
C) faster delivery times
D) greater bargaining power
Answer: D
Diff: 2
Page Ref: 388
Skill: Terminology/Concept
9) A major disadvantage of decentralized buying is ________.
A) excessive uniformity
B) poor morale at local stores
C) inflexibility in decision making
D) an inconsistent image
Answer: D
Diff: 2
Page Ref: 388
Skill: Terminology/Concept

105

10) Which is an example of a specialized buying organization for a national supermarket chain?
A) a buyer being responsible for purchasing for all stores in the Southwest
B) a buyer having an assistant buyer and an assistant to the buyer report to him or her
C) a buyer purchasing seafood directly from major fishing fleets
D) a buyer having a $2,000,000 budget each month
Answer: C
Diff: 2
Page Ref: 388
Skill: Terminology/Concept
11) Which type of buying organization generally services small noncompeting retailers?
A) specialized buying organization
B) general buying organization
C) inside buying organization
D) outside buying organization
Answer: D
Diff: 1
Page Ref: 389
Skill: Terminology/Concept
12) Which buying organization operates close to the sources of supply?
A) inside buying office
B) outside buying office
C) general buying office
D) resident buying office
Answer: D
Diff: 2
Page Ref: 390
Skill: Terminology/Concept
13) Which buying organization seeks to receive quantity discounts and bargaining power
discounts for its members so that they will be better able to compete against larger chain
organizations?
A) cooperative buying
B) inside buying organization
C) resident buying office
D) formal buying organization
Answer: A
Diff: 1
Page Ref: 390
Skill: Terminology/Concept
14) Merchandising includes ________.
A) the purchasing of goods and services but not the sale of them
B) display decisions only
C) selling of goods and services but not the purchasing of them
D) activities involved in the buying and selling of goods and services
Answer: D
Diff: 1
Page Ref: 390
Skill: Terminology/Concept

106

15) A major advantage of a merchandising philosophy is ________.


A) close supervision of selling staff
B) equal treatment of the selling function
C) the buyer is close to consumers via his or her involvement with selling
D) the use of specialists in each area
Answer: C
Diff: 2
Page Ref: 390
Skill: Terminology/Concept
16) A major disadvantage of a merchandising philosophy is that ________.
A) responsibility for success or failure may be unclear
B) functions are combined into one position that require different abilities
C) reporting responsibilities may be unclear
D) coordination of buying and selling may be reduced
Answer: B
Diff: 2
Page Ref: 390
Skill: Terminology/Concept
17) A model stock plan is used for ________.
A) dealer brands
B) fashion items
C) staple merchandise
D) key items
Answer: B
Diff: 1
Page Ref: 392
Skill: Terminology/Concept
18) A never-out list is used for ________.
A) fashion items
B) dealer brands
C) fad items
D) best sellers
Answer: D
Diff: 1
Page Ref: 393
Skill: Terminology/Concept
19) A good or service will be supplied in one basic version in which stage of the product life
cycle?
A) introduction
B) growth
C) maturity
D) decline
Answer: A
Diff: 1
Page Ref: 394
Skill: Terminology/Concept

107

20) The target market expands to include middle-income consumers who are somewhat more
innovative than the average consumer in which product life cycle stage?
A) introduction
B) growth
C) maturity
D) decline
Answer: B
Diff: 2
Page Ref: 395
Skill: Terminology/Concept
21) In the growth stage of the product life cycle, ________.
A) goods or service sales reach their maximum
B) variations in the basic product offering appear
C) distribution is typically very limited
D) a skimming price strategy is used
Answer: B
Diff: 1
Page Ref: 395
Skill: Terminology/Concept
22) In which product life cycle stage do goods or service sales reach their maximum?
A) maturity
B) growth
C) introduction
D) decline
Answer: A
Diff: 1
Page Ref: 395
Skill: Terminology/Concept
23) A retailer primarily appeals to the lowest income consumers and laggards in which stage of
the product life cycle?
A) introduction
B) growth
C) maturity
D) decline
Answer: D
Diff: 1
Page Ref: 395
Skill: Terminology/Concept

108

24) A vertical fashion trend occurs when a fashion ________.


A) is not successful when passed down to the mass market
B) is first accepted by an upscale market segment, but undergoes basic changes as it is sold to the
general public
C) is passed from the lower to the upper social classes
D) retains its basic form as it is accepted by the general public
Answer: B
Diff: 1
Page Ref: 396
Skill: Terminology/Concept
25) Which fashion theory assumes that a fashion passes from the upper to the lower social
classes?
A) vertical trend theory
B) horizontal trend theory
C) diffusion of innovation theory
D) fashion emulation theory
Answer: A
Diff: 2
Page Ref: 396
Skill: Terminology/Concept
26) Distinctive, emulation, and economic emulation are three stages in the ________.
A) diffusion of innovation theory
B) fashion emulation theory
C) vertical trend theory
D) horizontal trend theory
Answer: C
Diff: 1
Page Ref: 396
Skill: Terminology/Concept
27) Which retail assortment strategy is characterized by a retailer having a broad target market,
one-stop shopping, and a large inventory investment?
A) wide and deep
B) wide and shallow
C) narrow and deep
D) narrow and shallow
Answer: A
Diff: 1
Page Ref: 396-397
Skill: Terminology/Concept

109

28) Which retail assortment strategy is characterized by a retailer seeking an image as a


specialist?
A) narrow and shallow
B) narrow and deep
C) wide and shallow
D) wide and deep
Answer: B
Diff: 1
Page Ref: 396-397
Skill: Terminology/Concept
29) A common advantage of scrambled merchandising is that ________.
A) the scrambled goods have high profit margins
B) opportunities for cross-selling decrease
C) customers can be traded-up to more costly goods
D) the sale of substitute goods increases
Answer: A
Diff: 1
Page Ref: 398
Skill: Terminology/Concept
30) ________ brands are somewhat pre-sold to consumers, require limited retailer investment in
marketing, and often represent maximum quality to consumers.
A) Manufacturer (national)
B) Private (dealer)
C) Generic
D) Wholesaler
Answer: B
Diff: 1
Page Ref: 400
Skill: Terminology/Concept
31) A major advantage to a retailer's use of private (dealer) brands is ________.
A) less retailer investment
B) support by manufacturer advertising
C) the extent to which they are pre-sold to customers
D) the development of store loyalty among consumers
Answer: D
Diff: 2
Page Ref: 400
Skill: Terminology/Concept
32) Which brands generally receive secondary shelf locations and receive little or no promotion
support?
A) generic brands
B) manufacturer brands
C) dealer brands
D) scrambled merchandising
Answer: A
Diff: 1
Page Ref: 402
Skill: Terminology/Concept
110

33) Increased competition for shelf space among manufacturer, dealer, and generic brands is
commonly referred to as ________.
A) channel cooperation
B) the battle of the brands
C) channel conflict
D) slotting allowances
Answer: B
Diff: 1
Page Ref: 402
Skill: Terminology/Concept
34) Category management is a strategy that is used to improve a retailer's ________.
A) shelf-space productivity
B) point-of-sale displays
C) capital costs
D) overall productivity through the use of computerization
Answer: A
Diff: 1
Page Ref: 403-405
Skill: Terminology/Concept
35) Direct product profitability equals an item's ________.
A) annual sales divided by the total linear footage devoted to a product category
B) gross profit less its direct retailing costs (but not including general overhead)
C) annual gross profit divided by the total linear footage devoted to the item
D) number of days of supply on the shelf
Answer: B
Diff: 1
Page Ref: 404
Skill: Terminology/Concept
36) The opposite strategy to rationalized retailing is ________.
A) micromerchandising
B) centralized management
C) risk-minimization retailing
D) category management
Answer: A
Diff: 2
Page Ref: 386
Skill: Applied/Comprehensive/Integrative
37) Decentralized buying is often associated with ________.
A) category management
B) micromerchandising
C) risk-minimization retailing
D) electronic data interchange (EDI)
Answer: B
Diff: 2
Page Ref: 386
Skill: Applied/Comprehensive/Integrative

111

38) A major retailer desires to use specialists to plan, implement, and control the merchandising
function. The most appropriate buying organization is a(n) ________.
A) decentralized buying organization
B) inside buying organization
C) informal buying organization
D) formal buying organization
Answer: D
Diff: 1
Page Ref: 387
Skill: Applied/Comprehensive/Integrative
39) A furniture retailer with three branch stores has an owner that handles store operations,
buying, advertising, and finance responsibilities. Which buying organization does the retailer
use?
A) formal buying organization
B) informal buying organization
C) decentralized buying organization
D) centralized buying organization
Answer: B
Diff: 2
Page Ref: 387
Skill: Applied/Comprehensive/Integrative
40) A chain retailer with a national representation can optimize its use of national advertising
media through use of a(n) ________.
A) informal buying organization
B) resident buying office
C) decentralized buying organization
D) centralized buying organization
Answer: D
Diff: 1
Page Ref: 388
Skill: Applied/Comprehensive/Integrative
41) Specialized regional buying preferences are best served through which buying organization?
A) decentralized buying organization
B) inside buying organization
C) informal buying organization
D) formal buying organization
Answer: A
Diff: 1
Page Ref: 388
Skill: Applied/Comprehensive/Integrative

112

42) Which buying organization format for department stores is centralized?


A) main store control
B) equal store
C) separate store
D) diversified retailer
Answer: A
Diff: 2
Page Ref: 388
Skill: Applied/Comprehensive/Integrative
43) A separate store organization used by a department store chain is an example of a(n)
________.
A) decentralized buying organization
B) centralized buying organization
C) informal buying organization
D) resident buying office
Answer: A
Diff: 2
Page Ref: 388
Skill: Applied/Comprehensive/Integrative
44) The benefits of an outside buying organization are especially important to ________.
A) large retailers located near an important merchandise center
B) large retailers located far from an important merchandise center
C) small retailers located near an important merchandise center
D) small retailers located far from an important merchandise center
Answer: D
Diff: 1
Page Ref: 388-389
Skill: Applied/Comprehensive/Integrative
45) A department store chain, based in western Pennsylvania, can best keep in touch with
developments in the ladies clothing market, based in New York City, through a(n) ________.
A) informal buying organization
B) cooperative buying organization
C) resident buying office
D) inside buying organization
Answer: C
Diff: 1
Page Ref: 390
Skill: Applied/Comprehensive/Integrative
46) Small retailers seeking to match the same bargaining power as major chains should seek to
utilize ________.
A) an inside buying organization
B) a decentralized buying organization
C) resident buying offices
D) cooperative buying
Answer: D
Diff: 2
Page Ref: 390
Skill: Applied/Comprehensive/Integrative
113

47) A retailer is concerned that its current organization does not provide adequate attention to the
recruitment, motivation, and training of its sales personnel. The retailer needs to consider
reorganizing to ________.
A) a centralized buying organization
B) a decentralized buying organization
C) having separate buying and selling responsibilities
D) a merchandising organization
Answer: C
Diff: 2
Page Ref: 390
Skill: Applied/Comprehensive/Integrative
48) A retailer's descriptions of goods to be stocked in its assortment plan are constant over a fiveyear period. The assortment plan analyzed is a(n) ________.
A) never-out list
B) model stock plan
C) basic stock list
D) extended merchandise assortment plan
Answer: C
Diff: 1
Page Ref: 392
Skill: Applied/Comprehensive/Integrative
49) The preparation of descriptions of merchandise to be stocked is easiest in a(n) ________.
A) model stock plan
B) basic stock list
C) never out list
D) assortment plan
Answer: B
Diff: 1
Page Ref: 392
Skill: Applied/Comprehensive/Integrative
50) A retailer should require that an inventory of goods on hand be updated daily for goods that
are on its ________.
A) never-out list
B) model stock plan
C) basic stock list
D) extended merchandise assortment plan
Answer: A
Diff: 2
Page Ref: 393
Skill: Applied/Comprehensive/Integrative

114

51) The use of a perpetual inventory system to monitor inventory levels per unit based on initial
inventory levels, purchases, and sales is most common with a ________.
A) never-out list
B) model stock plan
C) basic stock list
D) extended merchandise assortment plan
Answer: A
Diff: 2
Page Ref: 393
Skill: Applied/Comprehensive/Integrative
52) Merchandise planning is most problematic for ________.
A) staple merchandise
B) seasonal merchandise
C) impulse merchandise
D) fad merchandise
Answer: D
Diff: 2
Page Ref: 393
Skill: Applied/Comprehensive/Integrative
53) The target market consists of the smallest number of consumers in which traditional product
life cycle stage?
A) growth
B) introduction
C) maturity
D) decline
Answer: B
Diff: 2
Page Ref: 394-395
Skill: Applied/Comprehensive/Integrative
54) The use of explanatory advertising by retailers and limited distribution by manufacturers are
characteristics of which product life cycle stage?
A) introduction
B) growth
C) maturity
D) decline
Answer: A
Diff: 1
Page Ref: 394-395
Skill: Applied/Comprehensive/Integrative
55) Most goods and services are at what stage of the traditional product life cycle?
A) introduction
B) growth
C) decline
D) maturity
Answer: D
Diff: 1
Page Ref: 395
Skill: Applied/Comprehensive/Integrative
115

56) Price competition by retailers is most intense in which product life cycle stage?
A) introduction
B) growth
C) maturity
D) decline
Answer: C
Diff: 1
Page Ref: 395
Skill: Applied/Comprehensive/Integrative
57) A retailer believing in the vertical trend theory would sell a distinctive fashion to which
target market when the design first appears?
A) upper social class
B) mass market
C) lower social class
D) working class
Answer: A
Diff: 2
Page Ref: 396
Skill: Applied/Comprehensive/Integrative
58) A major difference between a vertical and a horizontal fashion trend is based on the
________.
A) ultimate sales level achieved for the fashion
B) speed of diffusion of the fashion
C) social class of the initial group which accepts the trend
D) degree of fashion innovativeness
Answer: C
Diff: 2
Page Ref: 396
Skill: Applied/Comprehensive/Integrative
59) Which retail assortment strategy requires the greatest inventory investment for a retailer?
A) wide and deep
B) wide and shallow
C) narrow and shallow
D) narrow and deep
Answer: A
Diff: 2
Page Ref: 396-397
Skill: Applied/Comprehensive/Integrative
60) Which retail assortment strategy is used by a department store?
A) narrow and deep
B) narrow and shallow
C) wide and shallow
D) wide and deep
Answer: D
Diff: 2
Page Ref: 396-397
Skill: Applied/Comprehensive/Integrative

116

61) Which retail assortment strategy is used by a specialty store?


A) narrow and deep
B) narrow and shallow
C) wide and shallow
D) wide and deep
Answer: A
Diff: 1
Page Ref: 396-397
Skill: Applied/Comprehensive/Integrative
62) In general, as a retailer moves from a narrow and shallow strategy toward a wide and deep
strategy, ________.
A) customer disappointment with selection increases
B) one-stop shopping appeals are lost
C) inventory turnover decreases
D) a specialist image is received
Answer: C
Diff: 2
Page Ref: 396-397
Skill: Applied/Comprehensive/Integrative
63) A conventional supermarket's adding a line of gas barbecues and summer furniture during the
summer season illustrates which merchandising strategy?
A) scrambled merchandising
B) trading up
C) handling substitute products
D) selling complementary goods
Answer: A
Diff: 1
Page Ref: 398
Skill: Applied/Comprehensive/Integrative
64) The selling of car mats, burglar alarms, and extended warranties by a new car dealer
illustrates ________.
A) scrambled merchandising
B) trading up
C) selling substitute goods and services
D) selling complementary goods and services
Answer: D
Diff: 1
Page Ref: 398
Skill: Applied/Comprehensive/Integrative

117

65) A retailer seeks to minimize direct price competition among its goods and services. Which
branding philosophy should the retailer utilize?
A) manufacturer branding
B) private (dealer) branding
C) generic branding
D) mixed branding
Answer: B
Diff: 2
Page Ref: 400
Skill: Applied/Comprehensive/Integrative
66) A retailer has the greatest control over the pricing, image, and promotion of ________
brands.
A) private (dealer)
B) generic
C) national
D) manufacturer
Answer: A
Diff: 1
Page Ref: 400
Skill: Applied/Comprehensive/Integrative
67) It takes a retailer three days to process an order and the supplier an additional five days to
deliver ordered merchandise. The retailer should begin to order new merchandise ________.
A) when the current inventory is at 15 units
B) at least two days before the old inventory runs out
C) at least eight days before the old inventory runs out
D) at least ten days before the old inventory runs out
Answer: C
Diff: 2
Page Ref: 402-403
Skill: Applied/Comprehensive/Integrative
68) In category management, a grouping of products is viewed as a ________.
A) boutique
B) strategic business unit
C) functional unit
D) vendor responsibility unit
Answer: B
Diff: 2
Page Ref: 403-405
Skill: Applied/Comprehensive/Integrative

118

69) Which category management measure is most similar to inventory turnover?


A) reorder point
B) days' supply
C) direct product profitability
D) return on inventory investment
Answer: B
Diff: 1
Page Ref: 404
Skill: Applied/Comprehensive/Integrative
70) A retailer can purchase a national brand of canned corn for $.39. The canned corn sells for
$.52. Total direct retailing costs for the corn (warehouse costs and direct labor) equal $.03 per
can. In addition, $.05 per can is charged for administrative overhead. What is the direct product
profitability per can?
A) $.05
B) $.10
C) $.13
D) The answer cannot be determined from the information provided.
Answer: B
Diff: 2
Page Ref: 404
Skill: Applied/Comprehensive/Integrative
71) An informal buying organization is most likely to be found in a small, independent retailer.
Answer: TRUE
Diff: 1
Page Ref: 387
Skill: Terminology/Concept
72) Decentralized buying organizations are most likely to secure favorable purchase terms from
vendors.
Answer: FALSE
Diff: 1
Page Ref: 388
Skill: Terminology/Concept
73) A retail chain can seek to combine the benefits of centralized and decentralized organizations
by using a centralized buying organization and a decentralized selling organization.
Answer: TRUE
Diff: 2
Page Ref: 388
Skill: Terminology/Concept
74) Resident buying offices are used by retailers that have main stores nearby important market
centers.
Answer: FALSE
Diff: 1
Page Ref: 390
Skill: Terminology/Concept

119

75) Cooperative buying organizations generally are comprised of franchisees.


Answer: FALSE
Diff: 1
Page Ref: 390
Skill: Terminology/Concept
76) Retailers with a merchandising viewpoint are more likely to employ separate buyers and
sales managers.
Answer: FALSE
Diff: 1
Page Ref: 390
Skill: Terminology/Concept
77) For fashion merchandise, merchandise assortment planning is conducted with the use of a
basic stock list.
Answer: FALSE
Diff: 1
Page Ref: 392
Skill: Terminology/Concept
78) Fads and seasonality are part of the traditional product life cycle.
Answer: FALSE
Diff: 2
Page Ref: 394-395
Skill: Terminology/Concept
79) Product obsolescence characterizes the decline stage of the traditional product life cycle.
Answer: TRUE
Diff: 2
Page Ref: 394-395
Skill: Terminology/Concept
80) In the horizontal trend theory, a new fashion is accepted by a broad range of consumers when
first introduced.
Answer: TRUE
Diff: 1
Page Ref: 396
Skill: Terminology/Concept
81) The store type with the greatest depth of assortment is a specialty store.
Answer: TRUE
Diff: 2
Page Ref: 396-397
Skill: Terminology/Concept
82) The battle of the brands relates to a battle for shelf space and promotional emphasis between
manufacturer and private brands.
Answer: TRUE
Diff: 1
Page Ref: 402
Skill: Terminology/Concept

120

83) If it takes a retailer three days to process an order and the supplier an additional five days to
deliver the merchandise, the retailer should begin to order the merchandise at least 15 days
before the old inventory runs out.
Answer: FALSE
Diff: 2
Page Ref: 402-403
Skill: Terminology/Concept
84) Through category management, an item's performance is ranked only on the basis of gross
profit as a percent of sales.
Answer: FALSE
Diff: 1
Page Ref: 403-405
Skill: Terminology/Concept
85) Direct product profitability corresponds to a product's gross profit.
Answer: FALSE
Diff: 2
Page Ref: 404
Skill: Terminology/Concept
86) The effectiveness of a micromerchandising strategy can best be judged through category
management.
Answer: TRUE
Diff: 2
Page Ref: 386, 403-405
Skill: Applied/Comprehensive/Integrative
87) A retailer with homogenous demand patterns throughout its branches should use a
decentralized buying organization.
Answer: FALSE
Diff: 2
Page Ref: 388
Skill: Applied/Comprehensive/Integrative
88) Micromerchandising is generally associated with centralized buying organizations.
Answer: FALSE
Diff: 2
Page Ref: 388, 386
Skill: Applied/Comprehensive/Integrative
89) Decentralized buying organizations generally secure the best merchandise fit with each
specific geographic area where a retailer has stores.
Answer: TRUE
Diff: 2
Page Ref: 388
Skill: Applied/Comprehensive/Integrative
90) Outside buying organizations are typically used by large retail chains.
Answer: FALSE
Diff: 1
Page Ref: 388
Skill: Applied/Comprehensive/Integrative

121

91) Much of the benefit of resident buying offices can be achieved by a retailer using an outside
buying organization.
Answer: TRUE
Diff: 2
Page Ref: 390
Skill: Applied/Comprehensive/Integrative
92) Orders for staples are generally made using negotiated contracts.
Answer: FALSE
Diff: 2
Page Ref: 392
Skill: Applied/Comprehensive/Integrative
93) A basic stock list changes less on a year-to-year basis than either a never-out list or a model
stock plan.
Answer: TRUE
Diff: 2
Page Ref: 392, 393
Skill: Applied/Comprehensive/Integrative
94) The traditional product life cycle curve is bell-shaped.
Answer: TRUE
Diff: 2
Page Ref: 394-395
Skill: Applied/Comprehensive/Integrative
95) A new fashion costing $15,000 in Paris is copied in a $1,000 version in emulation, and in a
$75 version in economic emulation.
Answer: TRUE
Diff: 2
Page Ref: 396
Skill: Applied/Comprehensive/Integrative
96) In the vertical trend theory, fashion innovators are opinion leaders within any social class; in
the horizontal trend theory, fashion innovators are the upper social classes.
Answer: FALSE
Diff: 2
Page Ref: 396
Skill: Applied/Comprehensive/Integrative
97) A narrow and shallow retail assortment strategy requires the lowest inventory investment.
Answer: TRUE
Diff: 1
Page Ref: 396-397
Skill: Applied/Comprehensive/Integrative
98) The battle of the brands is an example of channel conflict.
Answer: TRUE
Diff: 2
Page Ref: 402
Skill: Applied/Comprehensive/Integrative

122

99) Stressing the sales of private brands at the expense of manufacturer brands by retailers is an
example of channel power.
Answer: FALSE
Diff: 2
Page Ref: 402
Skill: Applied/Comprehensive/Integrative
100) The computation of direct product profitability includes an item's share of allocated
overhead costs.
Answer: FALSE
Diff: 2
Page Ref: 404
Skill: Applied/Comprehensive/Integrative
101) What are the advantages and disadvantages of micromerchandising programs?
Diff: 1
Page Ref: 386
102) Under what conditions should a retailer consider using an informal buying organization?
Diff: 2
Page Ref: 387-388
103) Under what conditions should a retailer consider using a decentralized buying organization?
Diff: 2
Page Ref: 388
104) What are the pros and cons of the use of cooperative buying among noncompeting major
appliance stores that are independently-owned?
Diff: 1
Page Ref: 390
105) Develop a model stock plan for men's dress shoes. List the assumptions in your plan.
Diff: 2
Page Ref: 392
106) Develop a merchandising pan for fad merchandise.
Diff: 2
Page Ref: 392
107) Under what circumstances would you utilize a basic stock list for bath towels? ...a model
stock list? ...a never-out list? Explain your answers.
Diff: 2
Page Ref: 392-393
108) Show how a retailer's merchandising strategy would change as a good/service shifted from
growth to maturity in the traditional product life cycle.
Diff: 1
Page Ref: 394-395
109) a.
Differentiate between the vertical and horizontal trend theories.
b. Develop a merchandising plan for a new fashion on the basis of the vertical trend theory. ...the
horizontal trend theory.
Diff: 1
Page Ref: 396
110) Distinguish among scrambled merchandising, complementary goods and services, and
substitute goods and services.
Diff: 1
Page Ref: 398
123

111) Describe the significance of the battle of the brands for a major supermarket chain.
Diff: 1
Page Ref: 400
112) a.
Explain the pros and cons of the use of category management.
b. List and describe five performance measures used in category management.
Diff: 2
Page Ref: 403-405

124

Chapter 15
1) A retailer can most effectively track consumer purchases through ________.
A) a consumer loyalty program
B) panel data
C) want slips
D) want books
Answer: A
Diff: 1
Page Ref: 413
Skill: Terminology/Concept
2) A want book or want slip is used to record ________.
A) budget requests by store operations personnel
B) vendors that are preferred by retail personnel
C) budget requests for capital equipment
D) customer requests for merchandise that is either out of stock or unstocked
Answer: D
Diff: 1
Page Ref: 413
Skill: Terminology/Concept
3) Customer requests for unstocked or out-of-stock merchandise are recorded in a(n) ________.
A) generic product file
B) OCR-A system
C) UPC system
D) want book or want slip
Answer: D
Diff: 1
Page Ref: 413
Skill: Terminology/Concept
4) Which of the following is not a merchandise source?
A) resident buying office
B) company-owned
C) outside, regularly used supplier
D) outside, new supplier
Answer: A
Diff: 2
Page Ref: 414
Skill: Terminology/Concept

125

5) A deduction from a bill made by a retailer due to such infractions as late shipping or improper
labeling is called a ________.
A) penalty
B) liquidated damage
C) chargeback
D) holdback
Answer: C
Diff: 1
Page Ref: 415
Skill: Terminology/Concept
6) A purchaser of fine antiques is most likely to evaluate merchandise through ________.
A) description
B) sampling
C) inspection
D) testing by an independent agency
Answer: C
Diff: 2
Page Ref: 417
Skill: Terminology/Concept
7) An example of items which should be evaluated by a retailer by inspection are ________.
A) college textbooks
B) antique furniture
C) color televisions
D) file cabinets
Answer: B
Diff: 1
Page Ref: 417
Skill: Terminology/Concept
8) Description buying is most appropriate for ________.
A) breakable, perishable, or expensive items
B) standardized, nonbreakable, and nonperishable merchandise
C) jewelry and art works
D) nonstandardized, breakable, and perishable merchandise
Answer: B
Diff: 1
Page Ref: 417
Skill: Terminology/Concept
9) A new or special order usually results in a ________.
A) negotiated contract
B) uniform contract
C) new task purchase
D) consignment sale
Answer: A
Diff: 1
Page Ref: 417
Skill: Terminology/Concept

126

10) A regular order is characterized by ________.


A) a high degree of negotiation on an ongoing basis
B) a high level of opportunistic buying
C) a uniform contract with standardized terms
D) the use of opportunistic buying by a discounter
Answer: C
Diff: 1
Page Ref: 417
Skill: Terminology/Concept
11) Opportunistic buying is most commonly utilized by ________.
A) full-line discount houses
B) off-price retailers
C) supermarkets
D) specialty stores
Answer: B
Diff: 1
Page Ref: 417
Skill: Terminology/Concept
12) An advantage to a retailer's placing large orders for merchandise is ________.
A) quantity discounts obtained through volume purchases
B) lower chance of fashion or functional obsolescence
C) lower inventory holding costs
D) high inventory turnover
Answer: A
Diff: 2
Page Ref: 417
Skill: Terminology/Concept
13) The retailer does not pay for items until they are sold and can return merchandise ________.
A) when title is transferred on purchase
B) when title is transferred when the shipment is received
C) for all generics
D) in a consignment purchase
Answer: D
Diff: 2
Page Ref: 418
Skill: Terminology/Concept
14) A retailer can most effectively reduce its inventory risk through ________.
A) memorandum purchases
B) consignment purchases
C) floor-ready merchandise
D) private label purchases
Answer: B
Diff: 2
Page Ref: 418
Skill: Terminology/Concept

127

15) A logistics system can best be defined as the ________.


A) reduction of inventory in a system through more rapid reordering of goods in lower quantities
B) use of computer-assisted ordering between retailers and their suppliers
C) total process of moving goods from a manufacturer to a customer in the most timely and costefficient manner possible
D) acquisition and maintenance of a proper merchandise assortment while ordering, shipping,
handling, and other related costs are kept in check
Answer: C
Diff: 1
Page Ref: 422-423
Skill: Terminology/Concept
16) Unlike other methods of inventory management, logistics ________.
A) is concerned with the flow of information via paperless means
B) regards order processing and fulfillment, transportation, warehousing, customer service, and
inventory management as interdependent
C) seeks to minimize inventory accumulations in the whole channel system
D) seeks to trade off the lower inventory levels with lower levels of customer service
Answer: B
Diff: 2
Page Ref: 422-423
Skill: Terminology/Concept
17) The logistics aspect of a value delivery chain is ________.
A) third-party logistics management
B) electronic data interchange (EDI)
C) quick response (QR) inventory management
D) supply chain management
Answer: D
Diff: 1
Page Ref: 425
Skill: Terminology/Concept
18) A broad-based approach to supply chain management among a network of trading partners is
________.
A) third-party logistics
B) collaborative planning, forecasting, and replenishment (CPFR)
C) supply chain management
D) electronic data interchange (EDI)
Answer: B
Diff: 2
Page Ref: 425
Skill: Terminology/Concept

128

19) A retailer reduces the amount of inventory it keeps on hand by ordering more frequently and
in lower quantity through ________.
A) quick response (QR) inventory planning
B) top-down inventory planning
C) bottom-up inventory planning
D) UPC-based computerized ordering systems
Answer: A
Diff: 1
Page Ref: 425-426
Skill: Terminology/Concept
20) A disadvantage to the use of frequent ordering in small quantities is the ________.
A) loss of quantity discounts
B) high investment costs
C) high insurance costs
D) high storage costs
Answer: A
Diff: 2
Page Ref: 429
Skill: Terminology/Concept
21) A quick response (QR) inventory planning system is most effective when used in conjunction
with ________.
A) scrambled merchandising
B) floor-ready merchandise
C) efficient consumer response (ECR)
D) electronic article surveillance
Answer: C
Diff: 1
Page Ref: 425-426
Skill: Terminology/Concept
22) The use of such strategies as quick response inventory planning, electronic data interchange,
and logistics planning in an integrated manner by supermarkets is referred to as ________.
A) efficient consumer response (ECR)
B) efficient inventory management
C) effective inventory management
D) supermarket logistics
Answer: A
Diff: 1
Page Ref: 426
Skill: Terminology/Concept

129

23) Which one of the following activities by suppliers is not associated with a floor-ready
merchandise strategy?
A) requiring large minimum order sizes
B) placing of special tags on merchandise
C) placing merchandise on hangers
D) pre-ticketing of merchandise
Answer: A
Diff: 2
Page Ref: 426
Skill: Terminology/Concept
24) A paperless, computer-to-computer relationship between retailers and vendors is ________.
A) electronic data interchange (EDI)
B) quick response inventory planning (QR)
C) floor-ready merchandise
D) a basic automatic replenishment system
Answer: A
Diff: 1
Page Ref: 427
Skill: Terminology/Concept
25) A retailer can eliminate use of its own warehouses through ________.
A) ordering goods in large quantities
B) use of direct store distribution (DSD)
C) use of electronic data interchange (EDI) with key vendors
D) taking advantage of opportunities for quantity discounts
Answer: B
Diff: 2
Page Ref: 428
Skill: Terminology/Concept
26) Direct store distribution works best with ________.
A) perishables
B) seasonal merchandise
C) fads
D) fashion merchandise
Answer: A
Diff: 1
Page Ref: 428
Skill: Terminology/Concept
27) Which of the following is an advantage of central warehousing for a chain retailer?
A) lower transportation costs to individual stores
B) closeness to individual stores
C) increased capability of quick response systems
D) increased use of mechanization in the processing of goods
Answer: D
Diff: 1
Page Ref: 429
Skill: Terminology/Concept

130

28) About what dollar amount in U.S. retail sales is lost each year due to inventory shrinkage
(employee theft, customer shoplifting, vendor theft, and administrative errors)?
A) $15 billion
B) $45 billion
C) $50 billion
D) $100 billion
Answer: B
Diff: 1
Page Ref: 431
Skill: Terminology/Concept
29) According to a major study of inventory shrinkage, ________.
A) vendors' short shipping accounts for the major cause of inventory shrinkage
B) customers steal much more than employees
C) employee theft is much higher than shopper theft
D) electronic article surveillance is not an effective deterrent of inventory shrinkage
Answer: C
Diff: 1
Page Ref: 431
Skill: Terminology/Concept
30) Electronic article surveillance seeks to directly reduce inventory shrinkage by ________.
A) using cameras to monitor dressing room activity
B) reducing theft on specific items that have been targeted by management
C) setting up strict rules on the number of goods that can be tried on in dressing rooms at one
time
D) chaining expensive clothes together to reduce theft
Answer: B
Diff: 1
Page Ref: 431
Skill: Terminology/Concept
31) A retailer found that a small percent of goods represented a large proportion of the store's
total shrinkage. Which of the following strategies would be most effective?
A) use of in-store guards
B) electronic article surveillance on the affected goods
C) use of employee background checks
D) use of mystery shoppers to watch for shoplifting
Answer: B
Diff: 1
Page Ref: 431-432
Skill: Terminology/Concept

131

32) In a civil restitution law, ________.


A) shoplifters cannot plea bargain the minimum state sentence for their crime
B) shoplifters must undertake community service as restitution for their crime
C) shoplifters must pay for stolen merchandise or face arrests and criminal trials
D) employees convicted of stealing merchandise must be registered with local police
departments
Answer: C
Diff: 1
Page Ref: 432
Skill: Terminology/Concept
33) An effective store security program needs to be operational ________.
A) only when the store is closed
B) only when the store is open
C) only with customers
D) with customers and employees when the store is both closed and open
Answer: D
Diff: 1
Page Ref: 432
Skill: Terminology/Concept
34) Which theft deterrent strategy can have a major negative impact on employee morale?
A) the use of security guards
B) the use of electronic article surveillance
C) the use of in-store cameras
D) offering rewards for employees that report co-workers involved in theft
Answer: D
Diff: 1
Page Ref: 432
Skill: Terminology/Concept
35) The merchandise flow from the retailer back through the supply chain is termed ________.
A) reverse logistics
B) inbound logistics
C) third-party logistics
D) supply chain management
Answer: A
Diff: 1
Page Ref: 432
Skill: Terminology/Concept
36) A major disadvantage with a want book system used to gather information about consumer
demand is that ________.
A) it only records preferences of current customers
B) it does not record vendor preferences
C) it does not record style or color preferences
D) its accuracy depends on salesperson input
Answer: D
Diff: 2
Page Ref: 413
Skill: Applied/Comprehensive/Integrative

132

37) A major problem associated with the use of want books (want slips) is that they ________.
A) require a sophisticated data base
B) rely on retail salespeople to enter the relevant information
C) require a computer-based retail information system
D) require electronic data interchange (EDI) capability
Answer: B
Diff: 2
Page Ref: 413
Skill: Applied/Comprehensive/Integrative
38) Which source of merchandise utilizes vertical integration by a retailer?
A) company-owned
B) outside, new supplier
C) outside, regularly used supplier
D) cooperative-buying arrangement
Answer: A
Diff: 2
Page Ref: 414
Skill: Applied/Comprehensive/Integrative
39) A retailer and a supplier both utilize relationship marketing. Which merchandise source do
they best illustrate?
A) outside, new supplier
B) outside, regularly used supplier
C) opportunistic buying
D) company-owned
Answer: B
Diff: 2
Page Ref: 414
Skill: Applied/Comprehensive/Integrative
40) A retailer reduces its invoice by 5 percent since a supplier shipped seasonal merchandise 10
days late. The price reduction is designed to compensate the retailer for additional markdowns.
This reduction illustrates a ________.
A) markdown adjustment
B) slotting fee
C) slotting allowance
D) chargeback
Answer: D
Diff: 1
Page Ref: 415
Skill: Applied/Comprehensive/Integrative
41) Excessive use of chargebacks by a retailer illustrates ________.
A) scrambled merchandising
B) the retail life cycle
C) channel power
D) channel cooperation
Answer: C
Diff: 2
Page Ref: 415
Skill: Applied/Comprehensive/Integrative
133

42) An unsatisfactory evaluation may cause a retailer to reject an entire shipment. The retailer is
using which form of merchandise evaluation?
A) sampling
B) inspection
C) description
D) statistical evaluation
Answer: A
Diff: 1
Page Ref: 417
Skill: Applied/Comprehensive/Integrative
43) Description buying is most frequently used for ________.
A) standardized, unbreakable merchandise
B) expensive, perishable merchandise
C) items purchased under new or special orders
D) expensive, one-time purchases
Answer: A
Diff: 2
Page Ref: 417
Skill: Applied/Comprehensive/Integrative
44) Opportunistic buying is most frequently used by ________.
A) specialty stores
B) department stores
C) membership clubs and off-price chains
D) category killers
Answer: C
Diff: 1
Page Ref: 417
Skill: Applied/Comprehensive/Integrative
45) The purchase of out-of-season goods, manufacturer overruns, or cancelled orders by a
closeout retailer illustrates ________.
A) inspection buying
B) channel power
C) opportunistic buying
D) scrambled merchandising
Answer: C
Diff: 2
Page Ref: 417
Skill: Applied/Comprehensive/Integrative
46) A slotting allowance is a form of ________.
A) channel conflict
B) channel cooperation
C) short-run strategy by a manufacturer
D) electronic data interchange (EDI)
Answer: A
Diff: 2
Page Ref: 417
Skill: Applied/Comprehensive/Integrative

134

47) A manufacturer with low channel power may be able to get retailers to stock his or her goods
through a ________.
A) uniform contract
B) negotiated contract
C) dated purchase
D) consignment purchase
Answer: D
Diff: 2
Page Ref: 418
Skill: Applied/Comprehensive/Integrative
48) Both consignment purchases and memorandum purchases enable a retailer to ________.
A) lower insurance costs
B) improve cash flow
C) reduce inventory levels
D) increase information flows
Answer: B
Diff: 2
Page Ref: 418
Skill: Applied/Comprehensive/Integrative
49) The major difference between a consignment purchase and a memorandum purchase is based
on ________.
A) when title passes from seller to buyer
B) when an item is paid for
C) purchase price
D) eligibility for cooperative advertising allowances
Answer: A
Diff: 2
Page Ref: 418
Skill: Applied/Comprehensive/Integrative
50) The major difference between an inventory management system and a logistics system is that
the ________.
A) inventory management system is more concerned with supplier-retailer linkages
B) inventory management system does not consider the impact of lost business due to stockouts
C) inventory management system also includes purchasing and customer service considerations
D) logistics system also includes purchasing and customer service considerations
Answer: D
Diff: 2
Page Ref: 419-423; 429-431
Skill: Applied/Comprehensive/Integrative
51) A disadvantage to the use of infrequent ordering in large quantities is ________.
A) loss of quantity discounts
B) high investment costs
C) high ordering costs
D) high transportation costs
Answer: B
Diff: 2
Page Ref: 421
Skill: Applied/Comprehensive/Integrative
135

52) Which of the following is not a major advantage of having a large inventory for a retailer?
A) quantity discounts in purchases
B) lower risk of obsolescence and deterioration
C) lower frequency of stockouts
D) low per-item shipping costs
Answer: B
Diff: 2
Page Ref: 424
Skill: Applied/Comprehensive/Integrative
53) Third-party logistics is another term for ________.
A) outsourcing logistics
B) supply chain management
C) quick response inventory management
D) floor-ready merchandise
Answer: A
Diff: 1
Page Ref: 424
Skill: Applied/Comprehensive/Integrative
54) Which inventory management system results in longer-term retailer-vendor relationships and
frequent reordering?
A) computer-based UPC scanning
B) automatic recording
C) quick response (QR) inventory planning
D) economic order quantity
Answer: C
Diff: 1
Page Ref: 425
Skill: Applied/Comprehensive/Integrative
55) Which inventory management system in retailing corresponds to a just-in-time inventory
management system?
A) computer-based UPC scanning
B) quick response (QR) inventory planning
C) automatic reordering
D) economic order quantity
Answer: B
Diff: 2
Page Ref: 425-426
Skill: Applied/Comprehensive/Integrative
56) In order for quick response (QR) inventory planning to be effective, ________.
A) inventory ordering costs need to be low
B) inventory holding costs need to be low
C) electronic data interchange must not be functioning
D) shipping costs must be reduced
Answer: A
Diff: 2
Page Ref: 425-426
Skill: Applied/Comprehensive/Integrative

136

57) Electronic data interchange (EDI) and floor-ready merchandise are important components of
________.
A) computer-based UPC scanning
B) reorder points
C) quick response (QR) inventory planning
D) economic order quantity
Answer: C
Diff: 1
Page Ref: 425-426
Skill: Applied/Comprehensive/Integrative
58) A retailer can shift labeling and handling functions to a manufacturer through the use of
________.
A) private labels
B) floor-ready merchandise
C) quick response (QR) inventory planning
D) Universal Product Codes
Answer: B
Diff: 2
Page Ref: 426
Skill: Applied/Comprehensive/Integrative
59) Prior to establishing a quick response (QR) inventory planning system, suppliers need to
rethink their ________.
A) credit terms and quantity discount schedule
B) quantity discount schedule and minimum order sizes
C) purchase prices and minimum order sizes
D) credit terms and minimum order sizes
Answer: B
Diff: 2
Page Ref: 425-426
Skill: Applied/Comprehensive/Integrative
60) The use of advanced ship notices is an important aspect of ________.
A) efficient consumer response (ECR)
B) third party logistics
C) floor-ready merchandise
D) economic order quantity computation
Answer: A
Diff: 1
Page Ref: 427
Skill: Applied/Comprehensive/Integrative

137

61) Retailers can reduce the need for a central warehouse and for transferring goods after
purchase through use of ________.
A) hub-and-spoke distribution systems
B) bonded warehouses
C) direct store distribution
D) public warehouses
Answer: C
Diff: 1
Page Ref: 428
Skill: Applied/Comprehensive/Integrative
62) A major cost advantage associated with direct store distribution for a retailer is the ________.
A) mechanized processing of goods
B) reduction in warehouse expenses
C) efficient marking of merchandise
D) ease of returns
Answer: B
Diff: 1
Page Ref: 428
Skill: Applied/Comprehensive/Integrative
63) Which strategy is the opposite of direct store distribution?
A) central warehousing
B) decentralized warehousing
C) third-party logistics providers
D) efficient consumer response
Answer: A
Diff: 2
Page Ref: 428
Skill: Applied/Comprehensive/Integrative
64) Inventory management planning is most difficult for ________.
A) fad products
B) mature products
C) growing products
D) staples
Answer: A
Diff: 2
Page Ref: 429
Skill: Applied/Comprehensive/Integrative
65) Which of the following does not enable a retailer to reduce its inventory levels?
A) direct store distribution
B) floor-ready merchandise
C) memorandum purchases
D) quick response (QR) inventory planning
Answer: C
Diff: 2
Page Ref: 430
Skill: Applied/Comprehensive/Integrative
66) A retailer found that inventory shrinkage rates varied greatly by department, as well as by
138

merchandise item within departments. The retailer should consider using ________.
A) in-store cameras
B) point-of-sale computers
C) electronic article surveillance
D) burglar alarms
Answer: C
Diff: 2
Page Ref: 431
Skill: Applied/Comprehensive/Integrative
67) Effective employee theft deterrents include ________.
A) periodically testing burglar alarms
B) using iron gates and/or shatterproof glass on display windows
C) attaching expensive clothing together
D) locking up trash containers kept outside
Answer: D
Diff: 2
Page Ref: 432
Skill: Applied/Comprehensive/Integrative
68) Which of the following illustrates reverse logistics?
A) a retailer handling a product recall for a manufacturer
B) a wholesaler implementing direct store distribution for a retailer
C) a manufacturer implementing vendor-managed inventory (VMI) for a retailer
D) a wholesaler shipping a replacement part directly to a final consumer
Answer: A
Diff: 2
Page Ref: 432-433
Skill: Applied/Comprehensive/Integrative
69) The processing of returns and damaged goods is part of ________.
A) third-party logistics planning
B) slotting fees
C) quick response (QR) inventory planning
D) reverse logistics
Answer: D
Diff: 2
Page Ref: 432-433
Skill: Applied/Comprehensive/Integrative
70) A major difficulty with preventing theft of costly items by chaining items together (as with
leather coats) is that these strategies ________.
A) have a negative effect on employee morale
B) impede sales of the affected items
C) do not reduce insurance costs
D) have limited effectiveness in reducing theft rates
Answer: B
Diff: 2
Page Ref: 432
Skill: Applied/Comprehensive/Integrative
71) An important source of information about consumer demand is the want book or want slip.
139

Answer: TRUE
Diff: 1
Page Ref: 413
Skill: Terminology/Concept
72) Some retailers excessively use chargebacks as a means of getting price reductions from
vendors.
Answer: TRUE
Diff: 2
Page Ref: 415
Skill: Terminology/Concept
73) Opportunistic buying is common among off-price retailers.
Answer: TRUE
Diff: 2
Page Ref: 417
Skill: Terminology/Concept
74) Slotting allowances illustrate the high power large retailers have over major vendors.
Answer: TRUE
Diff: 2
Page Ref: 417
Skill: Terminology/Concept
75) A retailer's risk is minimized in a consignment purchase.
Answer: TRUE
Diff: 2
Page Ref: 418
Skill: Terminology/Concept
76) RFID is a similar concept to the UPC in identifying and keeping track of inventory.
Answer: TRUE
Diff: 2
Page Ref: 419
Skill: Terminology/Concept
77) Logistics is a narrower concept than inventory management.
Answer: FALSE
Diff: 2
Page Ref: 422-423, 429-430
Skill: Terminology/Concept
78) Collaborative planning, forecasting, and replenishment (CPFR) and efficient consumer
response relies upon supply chain management.
Answer: TRUE
Diff: 1
Page Ref: 425
Skill: Terminology/Concept

140

79) In quick response (QR) inventory planning, a retailer seeks to increase the average value of
inventory on hand.
Answer: FALSE
Diff: 1
Page Ref: 425-426
Skill: Terminology/Concept
80) Quick response (QR) inventory planning is generally used in conjunction with electronic
data interchange.
Answer: TRUE
Diff: 2
Page Ref: 425-426
Skill: Terminology/Concept
81) Efficient consumer response (ECR) incorporates quick response (QR) inventory planning,
electronic data interchange (EDI), and logistics planning.
Answer: TRUE
Diff: 1
Page Ref: 426
Skill: Terminology/Concept
82) A major benefit to central warehousing is direct product shipment to each store.
Answer: FALSE
Diff: 2
Page Ref: 427-428
Skill: Terminology/Concept
83) A comprehensive store security program needs to concentrate on losses due to employee,
customer, and vendor theft.
Answer: TRUE
Diff: 1
Page Ref: 431
Skill: Terminology/Concept
84) Items with rather high pilferage should receive electronic product tags in addition to overall
store security measures.
Answer: TRUE
Diff: 1
Page Ref: 431
Skill: Terminology/Concept
85) A supermarket's developing a system to handle returnable bottles is an example of reverse
logistics.
Answer: TRUE
Diff: 2
Page Ref: 432-433
Skill: Terminology/Concept
86) Data from want books, want slips, and competition shopping reports should be stored and
accessed in a retail information system.
Answer: FALSE
Diff: 2
Page Ref: 413
Skill: Applied/Comprehensive/Integrative

141

87) Generally, costly one-of-a-kind merchandise is evaluated via inspection.


Answer: TRUE
Diff: 2
Page Ref: 417
Skill: Applied/Comprehensive/Integrative
88) Orders for merchandise in a quick response (QR) inventory system are generally made using
negotiated contracts.
Answer: TRUE
Diff: 2
Page Ref: 417, 425-426
Skill: Applied/Comprehensive/Integrative
89) Opportunistic buying generally relies upon negotiated contracts.
Answer: TRUE
Diff: 1
Page Ref: 417
Skill: Applied/Comprehensive/Integrative
90) The basic difference between consignment and memorandum purchases is based on the size
of the order.
Answer: FALSE
Diff: 2
Page Ref: 418
Skill: Applied/Comprehensive/Integrative
91) If a logistics system works well, a firm can reduce stockouts and reduce inventory levels
simultaneously.
Answer: TRUE
Diff: 2
Page Ref: 422-424
Skill: Applied/Comprehensive/Integrative
92) To be effective, supply chain management must involve all of the parties that participate in
the retail logistics process.
Answer: TRUE
Diff: 2
Page Ref: 424
Skill: Applied/Comprehensive/Integrative
93) The use of collaborative planning, forecasting and replenishment (CPFR) is generally
associated with outside, new suppliers.
Answer: FALSE
Diff: 2
Page Ref: 425
Skill: Applied/Comprehensive/Integrative
94) A disadvantage to the use of quick response (QR) inventory planning is that a retailer may
not have adequate alternative sources of supply.
Answer: TRUE
Diff: 1
Page Ref: 425-426
Skill: Applied/Comprehensive/Integrative

142

95) Ideally, quick response (QR) inventory planning should be used in conjunction with
electronic data interchange (EDI) and floor-ready merchandise.
Answer: TRUE
Diff: 2
Page Ref: 425-426
Skill: Applied/Comprehensive/Integrative
96) The sale of floor-ready merchandise by a supplier increases the responsibilities of the
supplier beyond just providing the merchandise.
Answer: TRUE
Diff: 1
Page Ref: 426
Skill: Applied/Comprehensive/Integrative
97) Efficient consumer response (ECR) seeks to reduce inventory levels at manufacturers,
wholesalers, and retailers using collaboration among these channel members.
Answer: TRUE
Diff: 2
Page Ref: 426-427
Skill: Applied/Comprehensive/Integrative
98) Loss prevention programs need to consider such areas as dressing rooms, placement of
entrance areas, and delivery areas.
Answer: TRUE
Diff: 1
Page Ref: 431-432
Skill: Applied/Comprehensive/Integrative
99) Items with rather high pilferage should receive electronic product tags in addition to overall
store security measures.
Answer: TRUE
Diff: 1
Page Ref: 431-432
Skill: Applied/Comprehensive/Integrative
100) Customer returns, product recalls, and deposit bottles all involve reverse logistics for the
retailer.
Answer: TRUE
Diff: 2
Page Ref: 432-433
Skill: Applied/Comprehensive/Integrative
101) a.
What are the basic difficulties in the use of want books or want slips as sources of
information about consumer demand?
b. What other sources of information exist? Describe the advantages and disadvantages
associated with each identified source.
Diff: 2
Page Ref: 413
102) Describe the pros and cons to the use of an outside, regularly used supplier as a
merchandise source?
Diff: 1
Page Ref: 414

143

103) Describe the use of chargebacks from the perspectives of channel power and ethics.
Diff: 2
Page Ref: 415
104) Under what conditions should a retailer evaluate merchandise through inspection?
sampling? description?
Diff: 1
Page Ref: 417
105) a.
Explain the differences between RFID and UPC.
b. Why have retailers been slow to adopt RFID?
Diff: 1
Page Ref: 419
106) Differentiate among efficient consumer response; collaborative planning, forecasting, and
replenishment (CPFR); and vendor managed inventory (VMI).
Diff: 1
Page Ref: 425, 429
107) What are the overall retail strategy implications for the use of quick response (QR)
inventory planning by a retailer?
Diff: 1
Page Ref: 425-426
108) Describe the benefits and disadvantages associated with the use of centralized versus
decentralized warehouses.
Diff: 1
Page Ref: 427-428
109) What are the pros and cons of direct store distribution from the perspective of the retailer?
Diff: 1
Page Ref: 428
110) Develop a 10-item store security checklist aimed at reducing customer theft.
Diff: 2
Page Ref: 431-432
111) Develop a 10-item store security checklist aimed at reducing employee theft.
Diff: 2
Page Ref: 431-432
112) Develop a reverse logistics policy for a supermarket that handles product recalls, as well as
recyclable bottles.
Diff: 2
Page Ref: 432-433

144

Chapter 16
1) A plan that specifies which products are purchased, when products (goods and services) are
purchased, and how many products are purchased is a ________ plan.
A) unit control
B) dollar control
C) basic stock
D) financial merchandise
Answer: D
Diff: 1
Page Ref: 438
Skill: Terminology/Concept
2) Dollar control involves ________.
A) planning and monitoring a retailer's financial investment in merchandise over a stated time
period
B) the quantities that a retailer handles during a stated time period
C) ordering versus holding cost determination
D) ordering goods on the basis of lead times and safety stock
Answer: A
Diff: 1
Page Ref: 438
Skill: Terminology/Concept
3) Unit control decisions relate to ________.
A) decision making relative to stockout planning
B) open-to-buy decisions
C) assortment decisions
D) total dollar investment decisions
Answer: C
Diff: 2
Page Ref: 438
Skill: Terminology/Concept
4) Merchandise available for sale equals ________.
A) sales less cost of goods sold
B) ending inventory less beginning inventory
C) cost of goods sold less ending inventory
D) beginning inventory plus purchases plus transportation charges
Answer: D
Diff: 1
Page Ref: 438
Skill: Terminology/Concept

145

5) The cost of goods sold equals ________.


A) sales less merchandise available for sale
B) beginning inventory plus purchases plus transportation charges
C) the cost of merchandise available for sale minus ending inventory
D) beginning inventory less ending inventory
Answer: C
Diff: 1
Page Ref: 438
Skill: Terminology/Concept
6) Gross profit equals ________.
A) sales less cost of goods sold
B) adjusted gross profit times the cost complement
C) net profit less cost of goods sold
D) net profit less tax estimates
Answer: A
Diff: 1
Page Ref: 438
Skill: Terminology/Concept
7) In the cost method of accounting, to conduct a physical inventory, a retailer must ________.
A) convert the retail selling price to cost using the cost complement
B) determine the actual cost of each item
C) increase retail value to reflect additional markups
D) utilize a LIFO system
Answer: B
Diff: 1
Page Ref: 440
Skill: Terminology/Concept
8) Merchandise cost is typically coded on packages in the ________.
A) FIFO method of inventory valuation
B) LIFO method of inventory valuation
C) cost method of retail accounting
D) retail method of accounting
Answer: C
Diff: 2
Page Ref: 440
Skill: Terminology/Concept
9) A running total of the value of all inventory on hand at cost is kept in a ________.
A) physical inventory system
B) book inventory system
C) LIFO method of inventory valuation
D) FIFO method of inventory valuation
Answer: B
Diff: 1
Page Ref: 440
Skill: Terminology/Concept

146

10) Which method of inventory valuation assumes that new stock is sold first while older stock
remains in a retailer's inventory?
A) retail method of accounting
B) cost method of accounting
C) LIFO
D) FIFO
Answer: C
Diff: 1
Page Ref: 441
Skill: Terminology/Concept
11) Which accounting method gives retailers a tax advantage during inflationary times?
A) retail method of accounting
B) cost method of accounting
C) LIFO
D) FIFO
Answer: C
Diff: 2
Page Ref: 441
Skill: Terminology/Concept
12) A major disadvantage to the cost method of accounting is that ________.
A) markdowns, markups, and employee discounts must be constantly computed
B) costs must be assigned to each item in stock and to each item sold
C) the cost of goods sold is not based upon actual delivery costs
D) the cost complement may not accurately reflect true costs
Answer: B
Diff: 2
Page Ref: 442
Skill: Terminology/Concept
13) The average relationship of cost to retail value for a retailer's merchandise that is available
for sale is the ________.
A) cost complement
B) inventory turnover
C) open-to-buy
D) stock-to-sales ratio
Answer: A
Diff: 1
Page Ref: 442
Skill: Terminology/Concept
14) In the retail method of accounting, sales, employee discounts, and stock shortages are viewed
as ________.
A) adjusted markdowns
B) ending inventory value deductions
C) markdowns
D) deductions from retail value
Answer: D
Diff: 1
Page Ref: 443
Skill: Terminology/Concept
147

15) The ending book value of inventory less ________ or plus ________ equals adjusted ending
retail book value.
A) stock shortages at cost; stock overages at cost
B) stock shortages at retail; stock overages at retail
C) purchases; sales
D) markdowns; markups
Answer: B
Diff: 2
Page Ref: 443
Skill: Terminology/Concept
16) The difference between the retail book value of ending inventory, as compared to the actual
physical ending inventory value, is ________.
A) a shortage only
B) an overage only
C) either a shortage or an overage
D) the cost complement
Answer: C
Diff: 1
Page Ref: 443
Skill: Terminology/Concept
17) A major advantage to the retail method of accounting is the ________.
A) ease of preparing periodic financial statements
B) freedom from ever having to take a physical inventory
C) accuracy of the cost complement figure in approximating cost
D) ability to directly compute net profits
Answer: A
Diff: 2
Page Ref: 444
Skill: Terminology/Concept
18) A major disadvantage to the retail method of accounting is that ________.
A) book inventory value cannot be computed
B) the bookkeeping burden of keeping cost- and price-related data is considerable
C) perpetual inventory systems must be maintained
D) it does not reflect markdowns
Answer: B
Diff: 2
Page Ref: 444
Skill: Terminology/Concept
19) Merchandise categories used by a retailer in forecasting and budgeting are commonly
referred to as ________.
A) strategic business units (SBUs)
B) SIC classifications
C) UPC classifications
D) control units
Answer: D
Diff: 1
Page Ref: 445
Skill: Terminology/Concept
148

20) In developing control units, a retailer should be careful to ________.


A) change the classifications each year to reflect the model stock plan
B) use individual stockkeeping units (SKUs) as control units
C) use the broadest categories possible to facilitate data analysis
D) use classifications consistent with other internal company data
Answer: D
Diff: 2
Page Ref: 445
Skill: Terminology/Concept
21) Which of the following is not a control unit for a men's specialty clothing chain?
A) suits
B) three-button suits
C) suits priced between $195 and $295
D) average sales by customer
Answer: D
Diff: 2
Page Ref: 445
Skill: Terminology/Concept
22) Companywide sales of large retailers are generally forecast on the basis of a statistical
technique such as ________.
A) trend analysis
B) executive judgment
C) incremental forecasting
D) focus groups
Answer: A
Diff: 2
Page Ref: 446
Skill: Terminology/Concept
23) A retailer's monthly sales in October are equal to its average monthly sales for the year. Its
monthly sales index for October equals ________.
A) 0.0
B) 1.0
C) 100.0
D) The answer cannot be determined on the basis of the data provided
Answer: C
Diff: 2
Page Ref: 447
Skill: Terminology/Concept
24) A sales cushion is added to planned monthly sales in determining beginning-of-month
planned inventory in the ________ method of inventory-level planning.
A) stock-to-sales
B) weeks' supply
C) percentage variation
D) basic stock
Answer: D
Diff: 2
Page Ref: 448
Skill: Terminology/Concept
149

25) (Beginning inventory plus purchases) less (planned sales plus ending inventory) is equal to
________.
A) open-to-buy
B) planned reductions
C) the cost complement
D) markdowns
Answer: B
Diff: 2
Page Ref: 450
Skill: Terminology/Concept
26) The difference between planned purchases and purchase commitments made by a buyer for a
given time period is ________.
A) open-to-buy
B) the cost complement
C) retail reductions
D) planned initial markdowns
Answer: A
Diff: 1
Page Ref: 451
Skill: Terminology/Concept
27) A major advantage of the open-to-buy concept is that it ________.
A) controls retail reductions
B) enables a retailer to adjust merchandise purchases to reflect changes in sales, markdowns, and
so on
C) allows retailers to estimate stock shortages
D) minimizes ending inventory levels
Answer: B
Diff: 2
Page Ref: 451-452
Skill: Terminology/Concept
28) The use of pegboard displays with minimum inventory quantities noted on each location
illustrates a ________ system.
A) perpetual
B) point-of-sale
C) stock-counting
D) visual inspection
Answer: D
Diff: 1
Page Ref: 453
Skill: Terminology/Concept

150

29) Ongoing recordkeeping entries adjust for sales, purchases, transfers to other departments,
and returns in a ________ system.
A) visual inspection
B) point-of-sale
C) perpetual inventory
D) stock-counting
Answer: C
Diff: 1
Page Ref: 454
Skill: Terminology/Concept
30) The Universal Product Code (UPC) and scanning are important aspects of a ________
system.
A) manual system
B) POS perpetual inventory system
C) visual inspection
D) stock-counting
Answer: B
Diff: 1
Page Ref: 454
Skill: Terminology/Concept
31) An advantage to a low level of stock turnover is that ________.
A) inventory holding costs are low
B) quantity discounts can be received
C) merchandise on shelves is fresh
D) inventory investment is minimized
Answer: B
Diff: 2
Page Ref: 456
Skill: Terminology/Concept
32) The gross margin percentage and sales-to-stock ratio are two components of ________.
A) the break-even point
B) required initial markup percentage
C) the cost complement
D) gross margin return on investment (GMROI)
Answer: D
Diff: 1
Page Ref: 457
Skill: Terminology/Concept
33) The time span from the date an order is placed by a retailer to the date merchandise is ready
for sale is known as the ________.
A) reorder point
B) order lead time
C) usage rate
D) safety stock
Answer: B
Diff: 1
Page Ref: 457-458
Skill: Terminology/Concept
151

34) Safety stock is defined as ________.


A) average sales per day
B) extra inventory kept on hand to protect against out-of-stock conditions
C) the stock level at which an order must be placed
D) the time span from placing an order until goods are ready for sale
Answer: B
Diff: 1
Page Ref: 458
Skill: Terminology/Concept
35) The economic order quantity formulas seek to trade-off which two costs?
A) order processing and holding costs
B) direct costs and indirect costs
C) out-of-pocket and cash flow costs
D) out-of-pocket and opportunity costs
Answer: A
Diff: 1
Page Ref: 459
Skill: Terminology/Concept
36) An electronics retailer has a beginning-of-year inventory (at cost) of $400,000; its ending
inventory (at cost) is $410,000. Yearly purchases are $700,000 and transportation charges equal
$25,000. The retailer's merchandise available for sale is ________.
A) $225,000
B) $715,000
C) $1,125,000
D) $1,225,000
Answer: C
Diff: 2
Page Ref: 438
Skill: Applied/Comprehensive/Integrative
37) An electronics retailer has a beginning-of-year inventory (at cost) of $400,000; its ending
inventory (at cost) is $410,000. Yearly purchases are $700,000 and transportation charges equal
$25,000. The retailer's cost of goods sold is ________.
A) $225,000
B) $615,000
C) $715,000
D) $1,100,000
Answer: C
Diff: 2
Page Ref: 438
Skill: Applied/Comprehensive/Integrative

152

38) An electronics retailer has yearly sales of $1,000,000; its beginning-of-year inventory (at
cost) is $400,000 and its ending inventory (at cost) is $410,000. The retailer's annual purchases
are $700,000 and transportation charges equal $25,000. The retailer's gross profit equals
________.
A) $225,000
B) $285,000
C) $325,000
D) $350,000
Answer: B
Diff: 2
Page Ref: 438
Skill: Applied/Comprehensive/Integrative
39) The major difference between gross and net profit is that net profit ________.
A) deducts retail operating expenses
B) does not reflect retail operating expenses
C) uses a cost complement calculation
D) estimates stock adjustments
Answer: A
Diff: 1
Page Ref: 438
Skill: Applied/Comprehensive/Integrative
40) A retailer maintains a book (perpetual) inventory system in which all figures are kept at cost
values. Beginning-of-month inventory as of December 1, 2009 is $300,000; purchases in
December equal $100,000; and December's sales (at cost) equal $155,000. Beginning-of-month
inventory for January 1, 2010 equals ________.
A) $75,000
B) $145,000
C) $245,000
D) $300,000
Answer: C
Diff: 2
Page Ref: 440
Skill: Applied/Comprehensive/Integrative
41) During periods of rising inventory values, a retailer using the FIFO (first-in-first-out) method
could reduce its tax liability by ________.
A) estimating low deductions from retail value
B) using the cost method of retail accounting
C) switching from FIFO to the LIFO method of inventory valuation
D) using a low-cost complement
Answer: C
Diff: 1
Page Ref: 441
Skill: Applied/Comprehensive/Integrative

153

42) If a cost complement is 0.55, that means ________.


A) a firm has a gross margin of 55 percent
B) 55 cents of each retail sales dollar is made up of merchandise cost
C) stock shortages are 45 percent of sales
D) the cost of merchandise available for sale in a time period represents 55 percent of its retail
value
Answer: B
Diff: 2
Page Ref: 442
Skill: Applied/Comprehensive/Integrative
43) In preparing a retail method of accounting worksheet, your accountant has provided you with
the following data:
January 1, 2009 - December 31, 2010
At Cost
At Retail
Beginning inventory
$ 60,000
$100,000
Net purchases 350,000
550,000
Additional markups
----27,000
Transportation charges
3,500
----What is your correct cost complement?
A) 0.60
B) 0.61
C) 0.63
D) 0.67
Answer: B
Diff: 2
Page Ref: 442
Skill: Applied/Comprehensive/Integrative
44) A retailer's ending retail book value of inventory is $165,000. A physical inventory (at retail)
equals $177,000. The retailer ________.
A) switched from LIFO to FIFO
B) switched from FIFO to LIFO
C) has a stock shortage of $12,000
D) has a stock overage of $12,000
Answer: D
Diff: 1
Page Ref: 443
Skill: Applied/Comprehensive/Integrative

154

45) A retail sales clerk forgot to record a markdown on a dress from $149.00 to $99.00. What
impact will this bookkeeping error have on the firm?
A) It will result in an additional stock overage of $50.00.
B) It will result in an additional stock overage of $99.00.
C) It will result in an additional stock shortage of $50.00.
D) It will result in an additional stock shortage of $99.00.
Answer: C
Diff: 2
Page Ref: 443
Skill: Applied/Comprehensive/Integrative
46) A retailer's ending retail book value of inventory is $30,000. A physical inventory (at retail)
showed a value of $28,250. The adjusted ending retail book value of inventory is ________.
A) $28,250
B) $30,000
C) $32,750
D) $58,250
Answer: A
Diff: 2
Page Ref: 443
Skill: Applied/Comprehensive/Integrative
47) A firm's ending retail book value of inventory is $300,000; its stock shortages are $15,000. If
its cost complement is 0.70, what is its ending inventory at cost?
A) $199,500
B) $210,000
C) $213,100
D) $220,500
Answer: A
Diff: 2
Page Ref: 443
Skill: Applied/Comprehensive/Integrative
48) A firm's average monthly sales are $250,000. If December's sales are $650,000, December's
monthly sales index is ________.
A) 0.60
B) 2.60
C) 26
D) 260
Answer: D
Diff: 1
Page Ref: 447
Skill: Applied/Comprehensive/Integrative

155

49) A firm's average monthly sales are $300,000. If January's sales are $175,000, its monthly
sales index is ________.
A) 0.58
B) 58
C) 1.71
D) 171
Answer: B
Diff: 1
Page Ref: 447
Skill: Applied/Comprehensive/Integrative
50) If a retailer's average monthly sales are $400,000, what would its average monthly sales
index equal?
A) 0.30
B) 100
C) 300
D) The answer cannot be determined from information provided.
Answer: B
Diff: 2
Page Ref: 447
Skill: Applied/Comprehensive/Integrative
51) If a firm's sales index in January is 128 and average monthly sales are $300,000, what is the
January sales level?
A) $128,000
B) $300,000
C) $384,000
D) $428,000
Answer: C
Diff: 1
Page Ref: 447
Skill: Applied/Comprehensive/Integrative
52) A retailer using the basic stock method wants its basic stock to equal 15 percent of its 2010
average monthly sales. Yearly sales for 2010 are forecast at $3,000,000. Planned sales for
January 2010 are $400,000. What is the January 1, 2010 planned inventory value (at retail), using
the basic stock method?
A) $415,000
B) $437,500
C) $460,000
D) The answer cannot be determined from the information provided.
Answer: B
Diff: 2
Page Ref: 448
Skill: Applied/Comprehensive/Integrative

156

53) A retailer uses the percentage variation method in inventory level planning. If the store plans
an average monthly stock of $400,000 and September sales are estimated at 20 percent more than
average, the store's planned inventory level for September is ________.
A) $420,000
B) $440,000
C) $454,000
D) $480,000
Answer: B
Diff: 2
Page Ref: 449
Skill: Applied/Comprehensive/Integrative
54) A retailer uses the weeks' supply method of inventory-level planning. Average weekly sales
during a four-month period are forecast to be $10,000; the retailer wants to stock six weeks of
merchandise. What should the planned average inventory level be during this period?
A) $10,000
B) $48,000
C) $60,000
D) $240,000
Answer: C
Diff: 2
Page Ref: 449
Skill: Applied/Comprehensive/Integrative
55) A retailer expects monthly sales to be $500,000 and planned reductions from sales to be
$10,000. The retailer wants ending inventory to be $120,000 more than beginning inventory.
Planned purchases at retail are ________.
A) $380,000
B) $410,000
C) $510,000
D) $630,000
Answer: D
Diff: 2
Page Ref: 450
Skill: Applied/Comprehensive/Integrative
56) A tire retailer plans to sell $100,000 worth of tires in January. Planned reductions are
$15,000; planned inventory for January 1st is $300,000 and for January 31st is $350,000. As of
January 8th, the retailer has ordered $15,000 for January delivery. What is the open-to-buy for
the rest of the month?
A) $50,000
B) $65,000
C) $150,000
D) $165,000
Answer: C
Diff: 2
Page Ref: 450-451
Skill: Applied/Comprehensive/Integrative

157

57) A retailer has anticipated yearly expenses of $300,000, a net profit objective of $30,000,
planned reductions of $50,000, and planned net sales of $1,000,000. What is its required initial
markup percentage?
A) 30.0
B) 33.0
C) 36.2
D) 38.0
Answer: C
Diff: 1
Page Ref: 452
Skill: Applied/Comprehensive/Integrative
58) A retailer plans retail expenses for the following year to be 30 percent of net sales, desires a
6.0 percent (of net sales) profit margin, and assumes total reductions will be 5.0 percent of net
sales. What is its required initial markup percentage?
A) 30.0
B) 36.0
C) 39.0
D) 41.0
Answer: C
Diff: 1
Page Ref: 452
Skill: Applied/Comprehensive/Integrative
59) A retailer uses a stock counting-based physical inventory system. Its beginning inventory on
January 1, 2010 is 600 units; total purchases in January were 252 units. Sales for January were
325 units. A physical count of goods as of February 1, 2010 revealed 500 units. Stock shortages
for the period equal ________.
A) 27 units
B) 63 units
C) 155 units
D) 235 units
Answer: A
Diff: 2
Page Ref: 454
Skill: Applied/Comprehensive/Integrative
60) A retail firm has net sales of $2,000,000 for 2010. Its average monthly inventory at hand (at
retail) was $350,000. Its annual rate of stock turnover was ________.
A) 0.22
B) 0.30
C) 1.9
D) 5.7
Answer: D
Diff: 1
Page Ref: 456
Skill: Applied/Comprehensive/Integrative

158

61) A firm with a gross margin as a percent of sales of 20 and a sales-to-stock ratio of 10 has a
GMROI of ________.
A) 20
B) 75
C) 200
D) 400
Answer: C
Diff: 1
Page Ref: 457
Skill: Applied/Comprehensive/Integrative
62) A retailer's gross profit for 2010 was $70,000; its net sales were $1,000,000 and average
inventory at cost equaled $250,000. Its GMROI equaled ________.
A) 25.0 percent
B) 28.0 percent
C) 27.2 percent
D) 40.0 percent
Answer: B
Diff: 1
Page Ref: 457
Skill: Applied/Comprehensive/Integrative
63) A retailer uses a reorder point of 60 units. If its usage rate is 10 and its lead time is 5, what is
its safety stock?
A) 0.0 units
B) 0.5 unit
C) 5.0 units
D) 10.0 units
Answer: D
Diff: 1
Page Ref: 458
Skill: Applied/Comprehensive/Integrative
64) A firm's usage rate is 50 units, lead time is 7 days, and safety-stock requirements are 100
units. Its reorder point is ________.
A) 100 units
B) 300 units
C) 450 units
D) 500 units
Answer: C
Diff: 1
Page Ref: 458
Skill: Applied/Comprehensive/Integrative

159

65) A retailer uses a 30-unit reorder point, based on assuming a 5-day lead time, a 5-day usage
rate, and a 5-unit safety stock. For how many days will a stockout occur if the lead time becomes
8 days and the usage rate continues at 5 units per day?
A) 0 days
B) 1 day
C) 2 days
D) 3 days
Answer: C
Diff: 2
Page Ref: 458
Skill: Applied/Comprehensive/Integrative
66) Automatic reorder systems are best implemented for retailers that ________.
A) are independents
B) are small
C) have a perpetual inventory system and use reorder point calculations
D) are franchised
Answer: C
Diff: 1
Page Ref: 458-459
Skill: Applied/Comprehensive/Integrative
67) Automatic reorder systems can best be used for ________.
A) goods with high seasonality
B) staples
C) goods purchased using negotiation
D) goods with uncertain fashion cycles
Answer: B
Diff: 1
Page Ref: 458-459
Skill: Applied/Comprehensive/Integrative
68) A stationery store estimates that it can sell 2,000 inexpensive pens each year. Each pen costs
the store $.20; holding costs equal 20 percent of unit costs and order costs are $10 per order. The
economic order quantity is ________.
A) 300 pens
B) 333 pens
C) 500 pens
D) 1,000 pens
Answer: D
Diff: 1
Page Ref: 459
Skill: Applied/Comprehensive/Integrative

160

69) An electronics store estimates that it can sell 2,000 memory cards each year. Each card costs
the store $7.00; holding costs equal 20 percent of unit costs and order costs are $10 per order.
The economic order quantity is ________.
A) 12 cards
B) 122 cards
C) 140 cards
D) 169 cards
Answer: D
Diff: 1
Page Ref: 459
Skill: Applied/Comprehensive/Integrative
70) Holding costs are especially high for ________.
A) a retailer of staple goods
B) a computer retailer
C) floor-ready merchandise
D) goods with high inventory turnover
Answer: B
Diff: 2
Page Ref: 459
Skill: Applied/Comprehensive/Integrative
71) Since unit controls usually precede dollar controls, a retailer must plan its assortment
decisions prior to making investment commitments.
Answer: FALSE
Diff: 1
Page Ref: 438
Skill: Terminology/Concept
72) The cost of goods sold equals the cost of merchandise available for sale less operating
expenses.
Answer: FALSE
Diff: 2
Page Ref: 438
Skill: Terminology/Concept
73) Two inventory accounting systems are available to a retailer: the cost and retail methods of
accounting.
Answer: TRUE
Diff: 1
Page Ref: 439
Skill: Terminology/Concept
74) Under the retail system of accounting, a retailer cannot compute its gross profit until after
ending inventory is valued.
Answer: FALSE
Diff: 1
Page Ref: 442
Skill: Terminology/Concept

161

75) A retailer's cost complement is based upon the ratio of cost of goods sold to sales.
Answer: FALSE
Diff: 2
Page Ref: 442
Skill: Terminology/Concept
76) If a physical ending inventory amount exceeds the book inventory figure, the retailer has a
stock shortage.
Answer: FALSE
Diff: 1
Page Ref: 443
Skill: Terminology/Concept
77) Stock shortages may be due to bookkeeping errors such as unrecorded markdowns.
Answer: TRUE
Diff: 2
Page Ref: 443
Skill: Terminology/Concept
78) The adjusted ending retail book value multiplied by the cost complement equals the ending
inventory value at cost.
Answer: TRUE
Diff: 2
Page Ref: 443
Skill: Terminology/Concept
79) A significant advantage to the retail method of accounting is the ability to prepare a profitand-loss statement on the basis of book inventory figures.
Answer: TRUE
Diff: 2
Page Ref: 444
Skill: Terminology/Concept
80) The average monthly sales index should equal 1.00.
Answer: FALSE
Diff: 2
Page Ref: 447
Skill: Terminology/Concept
81) Open-to-buy is the difference between planned purchases and purchase commitments already
made by a buyer for that month.
Answer: TRUE
Diff: 1
Page Ref: 451
Skill: Terminology/Concept
82) A high stock turnover rate is generally associated with high inventory-holding costs.
Answer: FALSE
Diff: 1
Page Ref: 456
Skill: Terminology/Concept

162

83) GMROI combines gross profit and financial leverage measures.


Answer: FALSE
Diff: 2
Page Ref: 457
Skill: Terminology/Concept
84) The estimation of safety stock levels can be refined based on different probabilities of not
running out of stock.
Answer: TRUE
Diff: 2
Page Ref: 458
Skill: Terminology/Concept
85) The economic order quantity formula seeks to balance inventory ordering and inventoryholding costs.
Answer: TRUE
Diff: 1
Page Ref: 459
Skill: Terminology/Concept
86) A retailer has a beginning inventory (at cost) of $96,000, purchases (at cost) of $107,000, and
transportation charges of $1,000. Its merchandise available for sale is $203,000.
Answer: FALSE
Diff: 2
Page Ref: 438
Skill: Applied/Comprehensive/Integrative
87) A retailer's total merchandise available for sale (at cost) is $245,000; the total merchandise
available for sale at retail equals $300,000. Its cost complement is 0.82.
Answer: TRUE
Diff: 2
Page Ref: 442
Skill: Applied/Comprehensive/Integrative
88) A Web-based retailer's adjusted retail book value is $600,000; its cost complement is 0.60.
Its closing inventory at cost is $540,000.
Answer: FALSE
Diff: 2
Page Ref: 443
Skill: Applied/Comprehensive/Integrative
89) A retailer's sales for October are 70 percent of its average monthly sales level. Its monthly
sales index is -0.30.
Answer: FALSE
Diff: 2
Page Ref: 447
Skill: Applied/Comprehensive/Integrative
90) A retailer's average monthly sales are $90,000. If January's monthly sales index equals 115,
January's sales are $103,500.
Answer: TRUE
Diff: 2
Page Ref: 447
Skill: Applied/Comprehensive/Integrative

163

91) A retailer's average monthly sales are $130,000. If its monthly sales index for January is 72,
January's sales are $72,000.
Answer: FALSE
Diff: 2
Page Ref: 447
Skill: Applied/Comprehensive/Integrative
92) The basic stock method plans monthly inventory requirements on the basis of a basic stock
cushion and that month's estimated sales.
Answer: TRUE
Diff: 2
Page Ref: 448
Skill: Applied/Comprehensive/Integrative
93) A store plans average monthly stock of $100,000. September's sales are estimated at 30
percent more than average. The store's planned inventory for September on the basis of the
percentage variation method is $115,000.
Answer: TRUE
Diff: 2
Page Ref: 449
Skill: Applied/Comprehensive/Integrative
94) A jeweler plans January 2010 sales to be $100,000 and planned reductions to be 15 percent
of sales. If planned February 1, 2010 inventory equals $300,000 (at retail) and the January 1,
2010 inventory (at retail) equals $275,000, planned purchases (at retail) are $140,000.
Answer: TRUE
Diff: 2
Page Ref: 450-451
Skill: Applied/Comprehensive/Integrative
95) A firm's planned purchases for a given month are $70,000 and its purchase commitments are
$10,000. If its merchandise costs as a percent of selling price are .70, its open-to-buy at cost is
$4,200.
Answer: FALSE
Diff: 2
Page Ref: 451-452
Skill: Applied/Comprehensive/Integrative
96) A book department has $500,000 in yearly operating expenses and planned yearly sales of
$5,000,000. If reductions of $75,000 are anticipated and a profit goal of $200,000 is planned, its
required initial markup should be 15.3 percent.
Answer: TRUE
Diff: 2
Page Ref: 452
Skill: Applied/Comprehensive/Integrative
97) A dinnerware retailer plans retail operating expenses to be 42 percent of sales, a net profit
margin of 6 percent of sales and retail reductions to be 4 percent of sales. Its required initial
markup needs to equal 50 percent.
Answer: TRUE
Diff: 2
Page Ref: 452
Skill: Applied/Comprehensive/Integrative

164

98) A retailer's cost of goods sold during the year equals $500,000; its average inventory on hand
(at cost) equals $225,000 and planned reductions equal $25,000. Its annual rate of stock turnover
equals 2.
Answer: FALSE
Diff: 2
Page Ref: 456
Skill: Applied/Comprehensive/Integrative
99) A retailer has a usage rate of 11 units per day, a lead time of 6 days, and a safety stock level
of 9 units for a popular floor lamp. Its reorder point equals 77 units.
Answer: FALSE
Diff: 2
Page Ref: 458
Skill: Applied/Comprehensive/Integrative
100) An appliance repair service center estimates that the annual demand for a standard
replacement motor for a washing machine is 100 units. Order placement costs are $8; each motor
costs $50 and annual carrying costs per unit are 20 percent of purchase cost. The economic order
quantity is 13 units.
Answer: TRUE
Diff: 2
Page Ref: 459
Skill: Applied/Comprehensive/Integrative
101) Differentiate between dollar and unit control.
Diff: 1
Page Ref: 438
102) a.
Discuss the differences between the FIFO (first-in-first-out) and LIFO (last-infirst-out) methods of costing inventory.
b. Explain how retailers can reduce their profits by switching to LIFO.
Diff: 1
Page Ref: 441
103) Explain the advantages and disadvantages of cost-based inventory systems.
Diff: 1
Page Ref: 440-442
104) The three basic steps in computing an ending inventory value, using the retail method, are:
(1) calculating the cost complement, (2) calculating deductions from retail value, and (3)
converting retail inventory value to cost. Explain the components of each calculation. Use data.
Diff: 2
Page Ref: 442-443
105) Discuss the advantages and limitations of the retail method of accounting in comparison to
the cost method.
Diff: 1
Page Ref: 444
106) a.
Develop a checklist for evaluating a firm's control units.
b. Develop a control unit for a computer retailer.
Diff: 2
Page Ref: 445-446

165

107) a.
Describe how a retailer can implement a sales forecast using the monthly sales
index.
b. What are the advantages and limitations of this technique?
Diff: 1
Page Ref: 447-448
108) Differentiate among the following inventory-level planning techniques: basic stock method,
percentage variation method, weeks' supply method, and stock-to-sales method.
Diff: 2
Page Ref: 448-449
109) Describe how a retailer should engage in reduction planning. Discuss each reduction source
in your analysis.
Diff: 2
Page Ref: 450
110) a.
Describe the difference between planned purchases (at retail) and open-to-buy (at
retail).
b. Why is open-to-buy planning so important a measure for a retailer?
Diff: 2
Page Ref: 450-452
111) a.
Describe the calculation of gross margin return on investment (GMROI).
b. How can a retailer increase its GMROI.
Diff: 2
Page Ref: 457
112) a.
Explain how a stockout can occur using the reorder point formula.
b. Describe the use of the economic order quantity formula (EOQ) in planning reorder
quantities.
Diff: 1
Page Ref: 458-45

166

Chapter 17
1) The sensitivity of consumers to price changes is measured by the ________.
A) law of demand
B) sales to price coefficient
C) coefficient of elasticity
D) price elasticity of demand
Answer: D
Diff: 2
Page Ref: 466
Skill: Terminology/Concept
2) A relatively small percentage change in the price of a computer results in large percentage
changes in the number of units purchased for a retailer. The price elasticity of demand for
computers can be described as ________.
A) price elastic
B) unitary elasticity
C) price inelastic
D) low
Answer: A
Diff: 1
Page Ref: 466
Skill: Terminology/Concept
3) When the price elasticity of demand is high and prices go up, total ________.
A) revenues stay the same
B) revenues decline
C) revenues increase
D) profits increase
Answer: B
Diff: 2
Page Ref: 466
Skill: Terminology/Concept
4) When the price elasticity of demand is unitary and prices go down, total ________.
A) revenues stay the same
B) revenues decline
C) revenues increase
D) profits increase
Answer: A
Diff: 1
Page Ref: 466
Skill: Terminology/Concept

167

5) Price elasticity of demand is negative since ________.


A) consumers are generally price conscious
B) quantities sold decline as prices increase
C) there are few status-oriented consumers
D) most retailers use markup pricing
Answer: B
Diff: 2
Page Ref: 466
Skill: Terminology/Concept
6) Horizontal price fixing involves an agreement ________.
A) to charge retail firms lower prices in areas with an undesirable competitor
B) by any channel member not to sell merchandise below cost
C) among manufacturers, among wholesalers, or among retailers to set prices
D) by retailers to charge the price level suggested by manufacturers or wholesalers
Answer: C
Diff: 1
Page Ref: 468
Skill: Terminology/Concept
7) In vertical price fixing, ________.
A) channel members conspire to set retail prices at given levels
B) channel members agree not to sell merchandise below their cost
C) retailers have no intention of selling advertised goods
D) manufacturers or wholesalers are able to control the retail prices of their goods and services
Answer: D
Diff: 1
Page Ref: 468-469
Skill: Terminology/Concept
8) The intent of vertical price-fixing legislation was to protect ________.
A) large retail chains
B) small manufacturers
C) small, full-service retailers
D) final consumers
Answer: C
Diff: 2
Page Ref: 469
Skill: Terminology/Concept
9) Manufacturers and wholesalers can legally control retail prices by ________.
A) charging price-cutting retailers higher prices
B) limiting sales to interstate commerce
C) using consignment selling
D) refusing to sell to price-cutting retailers
Answer: C
Diff: 2
Page Ref: 469
Skill: Terminology/Concept

168

10) Price-discrimination legislation is designed to limit the ability of ________.


A) retailers to charge less than a manufacturer's or wholesaler's suggested list price
B) manufacturers and wholesalers to grant large discounts or favorable terms to large retailers
when the discount could not be justified by cost savings
C) manufacturers, wholesalers, and retailers from conspiring to fix retail prices
D) manufacturers from setting artificially-low prices with the intent of destroying competition
Answer: B
Diff: 2
Page Ref: 469
Skill: Terminology/Concept
11) Price discrimination is legal under the Robinson-Patman Act when ________.
A) different brand names are placed on a product
B) lower prices are offered in the form of favorable purchase terms (such as credit allowances)
C) a large customer threatens to cancel an order unless the seller reduces its price
D) price differences are equal to or less than a supplier's cost savings
Answer: D
Diff: 1
Page Ref: 469
Skill: Terminology/Concept
12) In predatory pricing, large retailers attempt to destroy smaller retailers by ________.
A) vertical integration
B) conspiring with manufacturers to refuse to sell to smaller retailers
C) selling goods at very low prices (sometimes even below cost)
D) providing free warranties with selected goods
Answer: C
Diff: 1
Page Ref: 470
Skill: Terminology/Concept
13) Retailers typically use loss leaders to ________.
A) increase store traffic
B) switch customers to other goods with higher profit margins
C) increase their bargaining power with select suppliers
D) practice opportunistic buying
Answer: A
Diff: 1
Page Ref: 420
Skill: Terminology/Concept
14) Unit pricing laws are necessary because of ________.
A) deceptive price advertising by retailers
B) scanning and the Universal Product Code
C) item-price removal by supermarket chains
D) the presence of many different-sized packages
Answer: D
Diff: 2
Page Ref: 470
Skill: Terminology/Concept

169

15) Item price removal enables supermarkets to ________.


A) mark prices for goods on shelves or signs and not on individual items
B) charge the higher of two prices, if two prices are on a single package
C) sell goods for below cost if they are matching a nearby competitor
D) selectively mark prices on "key" items only
Answer: A
Diff: 1
Page Ref: 470
Skill: Terminology/Concept
16) A retailer typically has no intention of selling a promoted good or service in ________.
A) unit pricing
B) item price removal
C) price discrimination
D) bait-and-switch advertising
Answer: D
Diff: 1
Page Ref: 471
Skill: Terminology/Concept
17) Which strategy does not enable a retailer to control retail prices?
A) stocking private brands
B) selling gray market goods
C) selling pre-sold manufacturer brands
D) centralizing purchases with few manufacturers
Answer: C
Diff: 2
Page Ref: 471
Skill: Terminology/Concept
18) In selling against the brand, ________.
A) manufacturer brands are given secondary shelf-space locations
B) retailers require slotting allowances from manufacturers for shelf space
C) retailers disparage manufacturer brands
D) retailers charge artificially high prices on manufacturer brands in order to sell their own
private labels
Answer: D
Diff: 1
Page Ref: 471
Skill: Terminology/Concept
19) In price guarantees, a manufacturer protects a retailer by ________.
A) indemnifying it for any antitrust action against the firm caused by the manufacturer's illegal
action
B) refunding the difference if a retailer must lower its retail price
C) offering to sell its private-label merchandise if required
D) refusing to sell to price-cutting retailers
Answer: B
Diff: 1
Page Ref: 471
Skill: Terminology/Concept

170

20) Individual retailers have no control over the setting of retail prices in ________.
A) deregulated market pricing
B) market pricing
C) administered pricing
D) government-controlled pricing
Answer: B
Diff: 1
Page Ref: 471-472
Skill: Terminology/Concept
21) A retailer able to develop a strongly differentiated retail mix can utilize ________.
A) pricing at the market
B) pricing below the market
C) deregulated market pricing
D) administered pricing
Answer: D
Diff: 1
Page Ref: 472
Skill: Terminology/Concept
22) An aggressive low-price strategy designed to sell a high volume of goods is ________.
A) market skimming pricing
B) market penetration pricing
C) the price-quality association
D) markup pricing
Answer: B
Diff: 1
Page Ref: 473
Skill: Terminology/Concept
23) Market penetration is an appropriate strategy when ________.
A) a retailer seeks to attract consumers less concerned with price and more concerned with
service, assortment, and status
B) new competitors are unlikely to enter the market
C) low prices discourage actual and potential competition
D) early recovery of cash is a goal of the retailer
Answer: C
Diff: 2
Page Ref: 473
Skill: Terminology/Concept
24) The price floor represents the ________.
A) highest price a consumer will pay
B) lowest acceptable price to a retailer
C) lowest competitor's price
D) lowest minimum price that is legal according to sales-below-cost laws
Answer: B
Diff: 1
Page Ref: 476
Skill: Terminology/Concept

171

25) Which of the following suggests that too low a price may hinder demand?
A) bait advertising
B) sales-below-cost laws
C) prestige pricing
D) predatory pricing laws
Answer: C
Diff: 1
Page Ref: 476
Skill: Terminology/Concept
26) The most widely practiced retail pricing technique is ________.
A) cost-oriented pricing
B) prestige pricing
C) competition-oriented pricing
D) demand-oriented pricing
Answer: A
Diff: 1
Page Ref: 476
Skill: Terminology/Concept
27) Markups in retailing are typically computed on the basis of ________.
A) merchandise cost
B) merchandise cost plus freight
C) retail selling price
D) retail selling price plus freight
Answer: C
Diff: 1
Page Ref: 476
Skill: Terminology/Concept
28) The difference between initial markups and maintained markups is due to ________.
A) different terms offered to larger customers
B) seasonal discounts
C) markdowns, added markups, shortages, and discounts
D) revisions in planned profits
Answer: C
Diff: 2
Page Ref: 478
Skill: Terminology/Concept
29) Direct product profitability (DPP) is an example of ________.
A) a variable markup policy
B) pricing at the market
C) administered pricing
D) unit pricing
Answer: A
Diff: 2
Page Ref: 479
Skill: Terminology/Concept

172

30) Which pricing strategy seeks to stabilize demand throughout the year?
A) variable pricing
B) everyday low pricing (EDLP)
C) one-price policy
D) flexible pricing
Answer: B
Diff: 2
Page Ref: 481
Skill: Terminology/Concept
31) A retailer that seeks to alter prices to reflect fluctuations in costs or consumer demand should
practice ________.
A) variable pricing
B) customary pricing
C) a one-price policy
D) price lining
Answer: A
Diff: 1
Page Ref: 482
Skill: Terminology/Concept
32) The opposite of setting prices by negotiation or bargaining is ________.
A) leader pricing
B) odd pricing
C) customary pricing
D) a one-price policy
Answer: D
Diff: 2
Page Ref: 483
Skill: Terminology/Concept
33) In which pricing technique does a retailer advertise and sell key items in the product
assortment at less than the usual profit margin?
A) price lining
B) leader pricing
C) odd pricing
D) bait-and-switch advertising
Answer: B
Diff: 1
Page Ref: 484
Skill: Terminology/Concept
34) A retailer sells men's suits for $179, $229, $309, and $359. This illustrates ________.
A) price lining
B) leader pricing
C) odd pricing
D) bait advertising
Answer: A
Diff: 2
Page Ref: 485
Skill: Terminology/Concept

173

35) A major advantage of an early markdown policy is that ________.


A) consumer interest is heightened during storewide clearances
B) merchandise offered for sale is fresh
C) goods can be resold during next season without any need for a price reduction
D) the retailer has greater opportunity to sell the good
Answer: B
Diff: 2
Page Ref: 487
Skill: Terminology/Concept
36) Price elasticity is ________ when the urgency for a purchase is low and the number of
acceptable substitutes is high.
A) inelastic
B) elastic
C) unitary
D) positive
Answer: B
Diff: 1
Page Ref: 466
Skill: Applied/Comprehensive/Integrative
37) Total demand for a movie drops from 400 to 350 units when a theater operator increases the
ticket price for a popular movie from $7 to $9. Price elasticity of demand (expressed as a positive
number) equals ________.
A) 0.125
B) 0.53
C) 0.67
D) 2.50
Answer: B
Diff: 2
Page Ref: 466-467
Skill: Applied/Comprehensive/Integrative
38) When a stationery store increases its price for a popular computer notebook from $1,000 to
$1,250, its quantity demanded decreases from 400 to 250 per month. Its price elasticity of
demand (expressed as a positive number) equals ________.
A) 1.11
B) 2.07
C) 2.30
D) 2.50
Answer: B
Diff: 2
Page Ref: 466-467
Skill: Applied/Comprehensive/Integrative

174

39) A negatively-sloped demand curve means that ________.


A) the price elasticity of demand is negative
B) demand is elastic
C) demand is inelastic
D) demand is unitary
Answer: A
Diff: 2
Page Ref: 466
Skill: Applied/Comprehensive/Integrative
40) The difference between horizontal price fixing and vertical price fixing is based on
________.
A) whether the channel members are at the same level
B) the legality of the resulting prices
C) the effect on final selling prices
D) whether collusion is involved
Answer: A
Diff: 2
Page Ref: 468, 469
Skill: Applied/Comprehensive/Integrative
41) Many manufacturers feel that vertical price fixing should be legal since it protects ________.
A) large chain organizations
B) final consumers seeking lower prices
C) manufacturers seeking large promotional budgets for innovative products
D) a brand's image that may be hurt from repeated price cutting by retailers
Answer: D
Diff: 2
Page Ref: 469-470
Skill: Applied/Comprehensive/Integrative
42) The Robinson-Patman Act was developed to ________.
A) provide lower prices to final consumers
B) make price conspiracies between channel members illegal
C) allow smaller retailers to receive similar prices to large retail chains that had high bargaining
power
D) limit price competition among retailers
Answer: C
Diff: 2
Page Ref: 469
Skill: Applied/Comprehensive/Integrative
43) Loss leaders are viewed as being particularly attractive by many retailers since they
________.
A) generate consumer store traffic throughout the store
B) ultimately destroy small, marginal competitors
C) are legal
D) are not forms of deceptive advertising according to FTC guidelines
Answer: A
Diff: 2
Page Ref: 470
Skill: Applied/Comprehensive/Integrative
175

44) A key difference between a loss leader and leader pricing is based upon whether ________.
A) the goods are sold above cost
B) bait advertising is used as part of the retailer's strategy
C) sufficient customer traffic is generated
D) competing retailers are hurt by the action
Answer: A
Diff: 2
Page Ref: 470, 484
Skill: Applied/Comprehensive/Integrative
45) A key difference between loss leaders and bait-and-switch advertising is based upon whether
________.
A) the strategy is legal
B) competitors are hurt by the offer
C) the retailer intends to sell the advertised good or service
D) ample store traffic is created by the strategy
Answer: C
Diff: 2
Page Ref: 470, 479
Skill: Applied/Comprehensive/Integrative
46) The key difference between bait-and-switch advertising and "trading the customer up" to a
more expensive substitute is that in "trading the customer up," the advertised low-price good
________.
A) is sold below cost
B) is available for sale at the advertised price
C) is disparaged
D) must be specially ordered
Answer: B
Diff: 2
Page Ref: 471
Skill: Applied/Comprehensive/Integrative
47) Selling against the brand and private labels are two strategies retailers use to ________.
A) increase consumer price elasticity
B) create nonprice competition
C) generate price competition
D) assert channel power
Answer: D
Diff: 2
Page Ref: 471
Skill: Applied/Comprehensive/Integrative
48) A retailer has the least control over retail price setting in ________.
A) a price war
B) a regulated pricing situation
C) an administered pricing situation
D) market pricing
Answer: D
Diff: 1
Page Ref: 471
Skill: Applied/Comprehensive/Integrative
176

49) Administered pricing utilizes ________.


A) nonprice competition
B) price guarantees
C) quantity and seasonal discounts
D) bargaining power
Answer: A
Diff: 2
Page Ref: 472
Skill: Applied/Comprehensive/Integrative
50) Administered pricing can be used in association with ________.
A) market penetration
B) price wars
C) market skimming
D) elastic demand
Answer: C
Diff: 2
Page Ref: 472, 473
Skill: Applied/Comprehensive/Integrative
51) A market penetration strategy should be used when a retailer ________.
A) believes in the price-quality association
B) seeks to maximize profits
C) seeks to maximize sales
D) seeks to differentiate its offerings through superior customer service
Answer: C
Diff: 1
Page Ref: 473
Skill: Applied/Comprehensive/Integrative
52) A market penetration strategy should be used when consumer price elasticity of demand is
________.
A) negative
B) inelastic
C) elastic
D) unitary
Answer: C
Diff: 2
Page Ref: 473
Skill: Applied/Comprehensive/Integrative
53) A retailer has exclusive distribution for a new product in its market area, views the market as
price inelastic, and desires an early-recovery-of-cash objective. What pricing strategy should it
pursue?
A) market pricing
B) price competition
C) market penetration
D) market skimming
Answer: D
Diff: 2
Page Ref: 473
Skill: Applied/Comprehensive/Integrative
177

54) At which price does the retailer maximize total sales revenue?
Selling Price Quantity Demanded
(in $)
(in units)
7
11,000
8
9,500
9
9,000
10
8,000
A) $7.00
B) $8.00
C) $9.00
D) $10.00
Answer: C
Diff: 2
Page Ref: 474
Skill: Applied/Comprehensive/Integrative
55) A 25 percent markup at cost equals what markup at retail?
A) 10 percent
B) 15 percent
C) 20 percent
D) 40 percent
Answer: C
Diff: 2
Page Ref: 476
Skill: Applied/Comprehensive/Integrative
56) A 60 percent markup at retail equals what markup at cost?
A) 52 percent
B) 60 percent
C) 150 percent
D) 200 percent
Answer: C
Diff: 2
Page Ref: 476
Skill: Applied/Comprehensive/Integrative
57) A close-out retailer can purchase a discontinued digital camera for $79 and wants to obtain a
40 percent markup at retail. What retail price should be charged?
A) $82.60
B) $98.33
C) $119.00
D) $131.67
Answer: D
Diff: 2
Page Ref: 477
Skill: Applied/Comprehensive/Integrative

178

58) A golf specialty store desires a minimum 40 percent markup for all of its golf sets and
accessories. The retailer feels that a popular golf set should retail at $895. What is the maximum
price the retailer can pay for the set?
A) $358.00
B) $398.00
C) $537.00
D) $577.00
Answer: C
Diff: 2
Page Ref: 477
Skill: Applied/Comprehensive/Integrative
59) A jewelry store has been offered a special price on estate jewelry. A typical 14-karat pin costs
the jeweler $350 and can retail at $595. What markup at retail will the jeweler obtain?
A) 20.0 percent
B) 36.4 percent
C) 41.2 percent
D) 57.1 percent
Answer: C
Diff: 2
Page Ref: 477
Skill: Applied/Comprehensive/Integrative
60) A retailer has planned operating expenses of 44 percent of planned sales and a planned profit
of 6 percent of sales. What markup percentage at retail does the retailer require?
A) 38 percent
B) 44 percent
C) 50 percent
D) The answer cannot be determined based on the information provided.
Answer: C
Diff: 2
Page Ref: 477
Skill: Applied/Comprehensive/Integrative
61) The major difference between an initial markup and a maintained markup is that the
maintained markup reflects ________.
A) actual (not planned) retail operating expenses
B) planned (not actual) retail operating expenses
C) planned shortages and overages
D) actual prices received and actual shortages
Answer: D
Diff: 2
Page Ref: 478
Skill: Applied/Comprehensive/Integrative

179

62) The most intensive cost analysis on a product basis occurs with ________.
A) price lining
B) variable pricing
C) direct product profitability
D) a variable markup policy
Answer: C
Diff: 2
Page Ref: 479
Skill: Applied/Comprehensive/Integrative
63) Manufacturers seek to reduce extreme shifts in demand due to stocking up by wholesalers,
retailers, and final consumers through ________.
A) a one-price policy
B) leader pricing
C) everyday low pricing (EDLP)
D) customary pricing
Answer: C
Diff: 2
Page Ref: 481
Skill: Applied/Comprehensive/Integrative
64) Some of the legal difficulties associated with the Robinson-Patman Act can be avoided
through use of ________.
A) a one-price policy
B) variable markup pricing
C) the price-quality association
D) customary pricing
Answer: A
Diff: 2
Page Ref: 483
Skill: Applied/Comprehensive/Integrative
65) The demand curve may not be negatively sloped throughout its range in ________.
A) variable pricing
B) odd pricing
C) flexible pricing
D) a one-price policy
Answer: B
Diff: 2
Page Ref: 484
Skill: Applied/Comprehensive/Integrative
66) An item originally priced at $50.00 is reduced to $29.95. The off-retail markdown percentage
is approximately ________.
A) 20 percent
B) 40 percent
C) 60 percent
D) 66 percent
Answer: B
Diff: 2
Page Ref: 486
Skill: Applied/Comprehensive/Integrative
180

67) An item originally priced at $75.00 is raised to $90.00 based upon unanticipated demand.
The addition to retail percentage is ________.
A) 16.7 percent
B) 20 percent
C) 23 percent
D) 25 percent
Answer: B
Diff: 2
Page Ref: 486
Skill: Applied/Comprehensive/Integrative
68) A computer retailer generally prices portable computers using a 25 percent markup. The firm
expects to sell 100 portable computers at the 25 percent markup. How many units would it have
to sell at a 15 percent discount from the original price to maintain the same gross profit?
A) 115
B) 167
C) 250
D) The answer cannot be determined from the information provided.
Answer: C
Diff: 2
Page Ref: 486-487
Skill: Applied/Comprehensive/Integrative
69) A stationery retailer generally prices portable computers using a 30 percent markup. The
retailer expects to sell 100 portable computers at the 30 percent markup. How many units would
it have to sell at a 10 percent increase in price from the original price to maintain the same gross
profit?
A) 75
B) 80
C) 82
D) 125
Answer: A
Diff: 2
Page Ref: 486-487
Skill: Applied/Comprehensive/Integrative
70) An early markdown policy can be assured through the use of a(n) ________.
A) off-retail markdown percentage plan
B) price-adjustment plan
C) stock-shortage control plan
D) automatic markdown plan
Answer: D
Diff: 1
Page Ref: 487
Skill: Applied/Comprehensive/Integrative

181

71) If total revenue increases when prices increase, the price elasticity of demand is inelastic.
Answer: FALSE
Diff: 2
Page Ref: 466
Skill: Terminology/Concept
72) Economic consumers are more price elastic than personalizing consumers.
Answer: TRUE
Diff: 1
Page Ref: 468
Skill: Terminology/Concept
73) Horizontal price fixing refers to the ability of manufacturers and wholesalers to set final
retail selling prices.
Answer: FALSE
Diff: 1
Page Ref: 468
Skill: Terminology/Concept
74) The Robinson Patman Act strove to curb the bargaining power of large retail chains.
Answer: TRUE
Diff: 1
Page Ref: 469
Skill: Terminology/Concept
75) The Robinson-Patman Act allows price discrimination when the products sold to competing
retailers are physically different.
Answer: TRUE
Diff: 2
Page Ref: 469
Skill: Terminology/Concept
76) With loss leaders, the retailer has no intention of selling the advertised item at the advertised
price.
Answer: FALSE
Diff: 1
Page Ref: 470
Skill: Terminology/Concept
77) Unit pricing requires that retailers list the price of each item in a conspicuous location on the
item.
Answer: FALSE
Diff: 1
Page Ref: 470
Skill: Terminology/Concept
78) High brand loyalty, an excellent location, and strong customer service allow a retailer to
utilize market pricing.
Answer: FALSE
Diff: 2
Page Ref: 471-472
Skill: Terminology/Concept

182

79) A market skimming strategy is most appropriate when customers are highly insensitive to
price and when the retailer seeks high profit per unit.
Answer: TRUE
Diff: 2
Page Ref: 473
Skill: Terminology/Concept
80) Psychological pricing is concerned with consumer perceptions of retail price.
Answer: TRUE
Diff: 2
Page Ref: 476
Skill: Terminology/Concept
81) The most widely used retail-pricing technique is markup pricing.
Answer: TRUE
Diff: 1
Page Ref: 476
Skill: Terminology/Concept
82) Maintained markup is based on the original retail value assigned to the merchandise.
Answer: FALSE
Diff: 1
Page Ref: 478
Skill: Terminology/Concept
83) In flexible pricing, a retailer allows buyers to negotiate.
Answer: TRUE
Diff: 1
Page Ref: 483
Skill: Terminology/Concept
84) Leader pricing seeks to increase store traffic through heavily promoted specials.
Answer: TRUE
Diff: 2
Page Ref: 484
Skill: Terminology/Concept
85) An early markdown policy enables a retailer to have every opportunity in the selling season
to sell the good at the originally designated price.
Answer: FALSE
Diff: 1
Page Ref: 487
Skill: Terminology/Concept
86) According to traditional economic pricing theory, price elasticity tends to be a negative
number.
Answer: TRUE
Diff: 2
Page Ref: 466
Skill: Applied/Comprehensive/Integrative

183

87) A retailer reduced the price of a disposable camera from $7 to $5; it expected annual demand
to increase from 500 units to 900 units. The retailer assumed that the price elasticity of demand
would be 2.71.
Answer: FALSE
Diff: 2
Page Ref: 466-467
Skill: Applied/Comprehensive/Integrative
88) The price elasticity of demand for a product can be elastic, inelastic, and unitary over
different price levels.
Answer: TRUE
Diff: 2
Page Ref: 466-467
Skill: Applied/Comprehensive/Integrative
89) An argument used by manufacturers and wholesalers for the legalization of vertical price
fixing is negative consumer perceptions of their products due to prestige pricing.
Answer: TRUE
Diff: 2
Page Ref: 468-469
Skill: Applied/Comprehensive/Integrative
90) Leader pricing accomplishes a similar objective as loss leaders, yet is legal.
Answer: TRUE
Diff: 2
Page Ref: 470, 484
Skill: Applied/Comprehensive/Integrative
91) The difference between loss leaders and bait-and-switch advertising is that with loss leaders,
the retailer stocks the good in sufficient quantities to meet anticipated demand.
Answer: TRUE
Diff: 2
Page Ref: 470, 471
Skill: Applied/Comprehensive/Integrative
92) Pricing above the market as a retail strategy is most appropriate in administered pricing.
Answer: TRUE
Diff: 2
Page Ref: 472, 480
Skill: Applied/Comprehensive/Integrative
93) The range of acceptable prices to both retailers and final consumers is between the demand
ceiling and the price floor.
Answer: FALSE
Diff: 2
Page Ref: 476
Skill: Applied/Comprehensive/Integrative
94) According to prestige pricing, the demand curve can be positively sloped at price levels that
are considered too low by consumers.
Answer: TRUE
Diff: 2
Page Ref: 476
Skill: Applied/Comprehensive/Integrative

184

95) A retailer can buy a leather portfolio case for $50.00 and wants to obtain a 50 percent markup
at retail. The retailer should charge a retail price of $125.00.
Answer: FALSE
Diff: 2
Page Ref: 477
Skill: Applied/Comprehensive/Integrative
96) A 100 percent markup at retail is equivalent to a 45 percent markup at cost.
Answer: FALSE
Diff: 2
Page Ref: 477
Skill: Applied/Comprehensive/Integrative
97) A retailer's planned operating expenses are 29 percent of its planned net sales. Its planned
profit is 5 percent of sales and its planned retail reductions are 8 percent of sales. Its planned
markup percent at retail is 42 percent of sales.
Answer: FALSE
Diff: 2
Page Ref: 477
Skill: Applied/Comprehensive/Integrative
98) Direct product profitability allows retailers to take into account differences in the costs of
installation, delivery, customer service, and merchandise handling in setting markups for
categories of merchandise.
Answer: TRUE
Diff: 2
Page Ref: 479
Skill: Applied/Comprehensive/Integrative
99) Profitability is determined on an item basis in direct product profitability (DPP).
Answer: TRUE
Diff: 2
Page Ref: 479
Skill: Applied/Comprehensive/Integrative
100) To stimulate additional sales, a men's clothing retailer is anticipating reducing its retail
prices by 10 percent from its current markup of 50 percent as a means of blunting competition
from a new category killer men's clothing chain that has opened in its trading area. It needs a 20
percent sales increase to maintain its former gross profit.
Answer: FALSE
Diff: 2
Page Ref: 486-487
Skill: Applied/Comprehensive/Integrative
101) How do the price-quality association, prestige pricing, customary pricing, and odd pricing
impact the price elasticity of demand?
Diff: 2
Page Ref: 466-467, 476, 481, 484
102) Outline the major manufacturer and wholesaler arguments for legalizing minimum pricing
across the board.
Diff: 2
Page Ref: 468-469

185

103) a.
Define loss leaders, bait-and-switch advertising, trading up, and leader pricing.
b. Explain the differences among each. Use an example.
Diff: 1
Page Ref: 470, 471, 484
104) Many channel price strategies reflect channel conflict among manufacturers, wholesalers,
and retailers. Select two price strategies that illustrate such conflict. Describe how the conflict
can be fairly resolved.
Diff: 2
Page Ref: 471
105) a.
Differentiate between administered and market pricing.
b. How can a retailer turn a market pricing environment into an administered pricing
environment?
Diff: 1
Page Ref: 472
106) What is the role of demand-, cost-, and competition-oriented pricing in developing and
implementing a price strategy?
Diff: 2
Page Ref: 476-481
107) What factors account for the popularity of markup pricing in retailing? Explain your
answer.
Diff: 1
Page Ref: 476
108) Explain how markup pricing can include a demand and a cost component.
Diff: 2
Page Ref: 476-478
109) Convert each of the following markup percentages at retail to markup percentages at cost:
30, 40, 50, and 60.
Diff: 1
Page Ref: 477
110) a.
Differentiate between the initial markup and maintained markup concepts on a
conceptual level.
b. Show how the formula for computing initial and maintained markups differ.
Diff: 1
Page Ref: 478
111) Explain the advantages and disadvantages of the use of everyday low pricing, a one-price
policy, leader pricing, and price lining to a retailer.
Diff: 1
Page Ref: 481, 483, 484, 485
112) Develop a checklist for use by a computer retailer for effective markdown control.
Diff: 2
Page Ref: 487

186

Chapter 18
1) The way in which a retailer is perceived by consumers and others is its ________.
A) store perception
B) aesthetics
C) image
D) atmosphere
Answer: C
Diff: 1
Page Ref: 505
Skill: Terminology/Concept
2) Positioning can best be defined as ________.
A) a retailer's projecting an image relative to its retail category and its competitors that elicits a
positive consumer response
B) how a retailer is perceived by consumers and others
C) the way in which a retailer is defined in a shopper's mind
D) the mix of atmosphere, storefronts, store layouts, displays, and customer services as they
relate to communicating with customers
Answer: A
Diff: 1
Page Ref: 505
Skill: Terminology/Concept
3) A store's physical characteristics that project an image and draw customers is its ________.
A) image
B) atmosphere
C) positioning
D) storefront
Answer: B
Diff: 1
Page Ref: 508
Skill: Terminology/Concept
4) A uniform storefront produced in a factory and delivered on-site is a ________.
A) modular structure
B) prefabricated structure
C) prototype store
D) prefabricated, prototype store
Answer: D
Diff: 2
Page Ref: 509
Skill: Terminology/Concept

187

5) A sign that displays a store's name is a ________.


A) recessed storefront
B) prototype display
C) marquee
D) modular display
Answer: C
Diff: 1
Page Ref: 509-510
Skill: Terminology/Concept
6) A curtain of warm or cold air is used in a(n) ________.
A) self-opening entrance
B) climate-controlled entrance
C) revolving door entrance
D) electronic gate entrance
Answer: B
Diff: 1
Page Ref: 510
Skill: Terminology/Concept
7) Which entrance type reduces pedestrian traffic congestion, makes a store inviting, and enables
customers to see inside the store?
A) self-opening entrance
B) climate-controlled entrance
C) revolving door entrance
D) electronic gate entrance
Answer: B
Diff: 2
Page Ref: 510
Skill: Terminology/Concept
8) In disguised building height, ________.
A) climate-controlled entrances are used to increase interior visibility
B) part of the store is beneath ground level
C) all floors are at ground level or higher
D) a store has no display windows
Answer: B
Diff: 2
Page Ref: 511
Skill: Terminology/Concept
9) Dead areas are store locations ________.
A) where normal displays cannot be set up
B) where customer traffic is very low
C) set aside for specific intent shopping
D) usually set aside for leased department operators
Answer: A
Diff: 1
Page Ref: 514
Skill: Terminology/Concept

188

10) The area set aside for merchandise displays, interactions between sales personnel and
customers, and demonstrations is ________ space.
A) customer
B) selling
C) merchandise
D) personnel
Answer: B
Diff: 1
Page Ref: 514
Skill: Terminology/Concept
11) An area where nondisplayed items are stocked is called ________ space.
A) selling
B) merchandise
C) personnel
D) customer
Answer: B
Diff: 1
Page Ref: 514
Skill: Terminology/Concept
12) Lounge areas, dressing rooms, wide aisles, and a restaurant are components of ________
space.
A) personnel
B) merchandise
C) selling
D) customer
Answer: D
Diff: 1
Page Ref: 515
Skill: Terminology/Concept
13) A visual or graphical representation of the space for selling, merchandise, personnel, and
customers, as well as for specific product categories, is referred to as ________.
A) a blueprint
B) rationalized retailing
C) a space allocation model
D) a planogram
Answer: D
Diff: 1
Page Ref: 515
Skill: Terminology/Concept
14) In a functional product grouping, goods are categorized by common ________.
A) end use
B) target market appeal
C) purchase motivation
D) price level
Answer: A
Diff: 1
Page Ref: 515
Skill: Terminology/Concept
189

15) A retailer seeking to determine an optimal location for impulse goods should utilize which
product grouping?
A) end use
B) target market appeal
C) purchase motivation
D) price level
Answer: C
Diff: 2
Page Ref: 515
Skill: Terminology/Concept
16) Perishable items are categorized and displayed on the basis of ________ product groupings.
A) end use
B) target market appeal
C) purchase motivation
D) storability
Answer: D
Diff: 1
Page Ref: 515
Skill: Terminology/Concept
17) In a straight (gridiron) traffic flow, ________.
A) shoppers are encouraged to walk throughout the store
B) customer space is maximized
C) impulse goods are placed in high traffic locations
D) a rectangular or gridiron pattern is used
Answer: D
Diff: 1
Page Ref: 516
Skill: Terminology/Concept
18) A straight (gridiron) traffic pattern is typically used by ________.
A) stores with large customer space
B) specialty stores
C) food retailers
D) nonfood retailers
Answer: C
Diff: 2
Page Ref: 516
Skill: Terminology/Concept
19) A major advantage to a straight (gridiron) traffic flow is ________.
A) large open areas are developed
B) ease of self-service merchandising
C) multiple traffic patterns are developed
D) the feeling of openness within the store
Answer: B
Diff: 1
Page Ref: 516
Skill: Terminology/Concept

190

20) A free-flowing pattern is used in ________.


A) a curving traffic flow
B) a straight traffic flow
C) customer space
D) selling space
Answer: A
Diff: 1
Page Ref: 616
Skill: Terminology/Concept
21) A retailer determines its space needs in a model stock approach on the basis of ________.
A) maintaining a proper assortment of merchandise
B) inventory turnover
C) supplier use of electronic data interchange (EDI)
D) fit of merchandise to modular displays
Answer: A
Diff: 2
Page Ref: 516
Skill: Terminology/Concept
22) Under the model stock approach, a retailer determines selling space needs by ________.
A) dividing merchandise into impulse and specific intent categories
B) computing the amount of floor space necessary to display a given assortment of merchandise
C) increasing space for complementary goods and decreasing space for substitute goods
D) determining which products will maximize sales or profit per square foot
Answer: B
Diff: 2
Page Ref: 516
Skill: Terminology/Concept
23) With the sales-productivity ratio, a retailer determines space needs by ________.
A) dividing merchandise into impulse and specific intent categories
B) computing the amount of floor space necessary to display a given assortment of merchandise
C) increasing space for complementary goods and decreasing space for substitute goods
D) determining which products will maximize sales or profit per foot
Answer: D
Diff: 1
Page Ref: 516
Skill: Terminology/Concept
24) The best retail locations are generally given to ________ goods.
A) profitable
B) convenience
C) complementary
D) specialty
Answer: A
Diff: 2
Page Ref: 518
Skill: Terminology/Concept

191

25) The poorest retail display position is a(n) ________ position.


A) end-aisle
B) ankle-level
C) eye-level
D) checkout counter
Answer: B
Diff: 2
Page Ref: 518
Skill: Terminology/Concept
26) Assortment, theme-setting, and cut case displays are all ________ displays.
A) ankle-level
B) end-aisle
C) eye-level
D) point-of-purchase
Answer: D
Diff: 2
Page Ref: 519-520
Skill: Terminology/Concept
27) Customers are encouraged to look at a variety of merchandise but not to touch or try these
items on in a(n) ________ display.
A) cut case
B) ensemble
C) closed assortment
D) open assortment
Answer: C
Diff: 1
Page Ref: 519
Skill: Terminology/Concept
28) Retailers often use ________ displays to portray a specific atmosphere or mood.
A) assortment
B) theme-setting
C) ensemble
D) rack
Answer: B
Diff: 1
Page Ref: 519
Skill: Terminology/Concept
29) Related-item selling is represented in a(n) ________ display.
A) assortment
B) theme-setting
C) rack
D) ensemble
Answer: D
Diff: 1
Page Ref: 519
Skill: Terminology/Concept

192

30) The least expensive display is a(n) ________ display.


A) cut case
B) assortment
C) ensemble
D) rack
Answer: A
Diff: 1
Page Ref: 520
Skill: Terminology/Concept
31) The equivalent of a storefront for a Web-based retailer is a(n) ________.
A) E-mail address
B) search engine
C) checkout counter
D) home page
Answer: D
Diff: 1
Page Ref: 520
Skill: Terminology/Concept
32) The equivalent of "width of aisles" for a Web site is the ________.
A) degree of clutter
B) depth of merchandise carried
C) width of merchandise carried
D) consistency of merchandise carried
Answer: A
Diff: 1
Page Ref: 521
Skill: Terminology/Concept
33) The aim of experiential shopping is to ________.
A) increase impulse sales
B) convert shopping from a passive activity to a more interactive activity
C) simplify the purchase process
D) increase the percent of Web-based consumers who complete the transaction on a checkout
counter
Answer: B
Diff: 1
Page Ref: 523
Skill: Terminology/Concept
34) A ready-to-heat meal offered for sale by a supermarket is an example of ________.
A) experiential shopping
B) impulse sales
C) cross-merchandising
D) solutions selling
Answer: D
Diff: 1
Page Ref: 524
Skill: Terminology/Concept

193

35) A Starbucks coffee shop in a Barnes & Noble store best illustrates ________.
A) impulse sales
B) co-branding
C) experiential shopping
D) an ensemble display
Answer: B
Diff: 1
Page Ref: 525
Skill: Terminology/Concept
36) Common storefronts and similar customer service strategies are used by franchisors and
retail chains to ________.
A) reduce start-up costs
B) maintain a consistent image across all units
C) increase bargaining power with vendors
D) enable centralized advertising
Answer: B
Diff: 2
Page Ref: 509
Skill: Applied/Comprehensive/Integrative
37) Which type of storefronts are most likely to be uniform within a chain or franchise?
A) modular
B) recessed
C) prefabricated
D) prototype
Answer: D
Diff: 2
Page Ref: 509
Skill: Applied/Comprehensive/Integrative
38) While many retailers like the concept of multiple entrances for generating customer traffic,
they are concerned that multiple entrances may ________.
A) increase the risk of pilferage
B) generate an additional flow of customer traffic
C) result in higher insurance costs
D) be detrimental in case of earthquakes or fires
Answer: A
Diff: 2
Page Ref: 510
Skill: Applied/Comprehensive/Integrative
39) What type of space is most appropriate for a centralized returns department?
A) dead area
B) selling space
C) merchandise space
D) customer space
Answer: A
Diff: 2
Page Ref: 514
Skill: Applied/Comprehensive/Integrative

194

40) The largest percentage of most retail facilities is comprised of ________ space.
A) personnel
B) customer
C) selling
D) merchandise
Answer: C
Diff: 2
Page Ref: 514
Skill: Applied/Comprehensive/Integrative
41) What type of retailer has no selling space?
A) direct marketer
B) supermarket
C) department store
D) self-service
Answer: A
Diff: 2
Page Ref: 514
Skill: Applied/Comprehensive/Integrative
42) The ratio of selling space to total space is highest for which type of retailer?
A) full-service
B) retail catalog showroom
C) self-service
D) specialty
Answer: C
Diff: 2
Page Ref: 514
Skill: Applied/Comprehensive/Integrative
43) The retailer with the largest percentage of customer space to selling space is a ________.
A) full-service specialty store
B) buying club
C) supermarket
D) factory outlet
Answer: A
Diff: 2
Page Ref: 514
Skill: Applied/Comprehensive/Integrative
44) Customer space has the lowest proportion of total space for which type of retailer?
A) full-service
B) discount
C) department store
D) specialty store
Answer: B
Diff: 2
Page Ref: 514
Skill: Applied/Comprehensive/Integrative

195

45) An example of customer space in a regional shopping center is a ________.


A) department store
B) community meeting room
C) storage room
D) car wash
Answer: B
Diff: 1
Page Ref: 515
Skill: Applied/Comprehensive/Integrative
46) A membership chain drugstore places camera batteries, battery chargers, memory cards and
camera cases next to each other. This represents which product grouping?
A) storability
B) market segment
C) purchase motivation
D) functional
Answer: D
Diff: 1
Page Ref: 515
Skill: Applied/Comprehensive/Integrative
47) Cross-selling opportunities are increased through the use of which product grouping?
A) storability
B) market segment
C) purchase motivation
D) functional
Answer: D
Diff: 2
Page Ref: 515
Skill: Applied/Comprehensive/Integrative
48) A department store leases space to travel agents and beauty parlors in areas with low
customer traffic. This illustrates a ________ product grouping.
A) storability
B) market segment
C) purchase motivation
D) functional
Answer: C
Diff: 2
Page Ref: 515
Skill: Applied/Comprehensive/Integrative
49) A retailer places impulse goods on the first floor near the main entrance. This retailer utilizes
a ________ product grouping.
A) functional
B) purchase motivation
C) market segment
D) storability
Answer: B
Diff: 1
Page Ref: 515
Skill: Applied/Comprehensive/Integrative
196

50) Department stores commonly classify female clothing into juniors, misses, and ladies. This
represents a ________ grouping.
A) functional
B) purchase motivation
C) market segment
D) storability
Answer: C
Diff: 1
Page Ref: 515
Skill: Applied/Comprehensive/Integrative
51) The straight traffic pattern is most widely used by ________.
A) discount stores
B) department stores
C) gasoline stations
D) specialty stores
Answer: A
Diff: 1
Page Ref: 516
Skill: Applied/Comprehensive/Integrative
52) A curving traffic pattern is most widely used by ________.
A) hardware stores
B) supermarkets
C) discount stores
D) boutiques
Answer: D
Diff: 1
Page Ref: 516
Skill: Applied/Comprehensive/Integrative
53) A major advantage of a curving traffic pattern is ________.
A) ease of locating merchandise product groupings
B) all available floor space is used
C) security is simplified
D) multiple traffic patterns are developed
Answer: D
Diff: 2
Page Ref: 516
Skill: Applied/Comprehensive/Integrative

197

54) A bookstore determines space needs for each department on the basis of assortment
guidelines. For example, the computer department requires ample selling space for classic
programs, new programs, novices, and computer nerds. The bookstore determines space needs
by ________.
A) the sales-productivity ratio
B) the model stock approach
C) market segment product groupings
D) functional product groupings
Answer: B
Diff: 2
Page Ref: 516
Skill: Applied/Comprehensive/Integrative
55) A major advantage of the model stock approach is that it ________.
A) tries to maximize total sales
B) insures a balanced assortment of goods
C) strives to maximize total store profits
D) seeks to maximize sales per square foot
Answer: B
Diff: 1
Page Ref: 516
Skill: Applied/Comprehensive/Integrative
56) A major disadvantage of the model-stock approach is that ________.
A) an inadequate selection of merchandise may be encouraged
B) storability may not be considered
C) space may not be assigned on the basis of sales or profit potential
D) too little space may be assigned for merchandise space
Answer: C
Diff: 2
Page Ref: 516
Skill: Applied/Comprehensive/Integrative
57) A supermarket assigns shelf space on the basis of sales volume. For example, a brand with
twice the sales volume will be assigned twice the shelf facings of the slower-selling brand. This
retailer determines space needs by ________.
A) the sales-productivity ratio
B) the model stock approach
C) market segment product groupings
D) the law of diminishing returns
Answer: A
Diff: 1
Page Ref: 516
Skill: Applied/Comprehensive/Integrative

198

58) Ensemble displays are commonly used in a ________ product grouping.


A) storability
B) market segment
C) purchase motivation
D) functional
Answer: D
Diff: 2
Page Ref: 519
Skill: Applied/Comprehensive/Integrative
59) The lowest cost assembled display is a(n) ________ display.
A) assortment
B) cut case
C) ensemble
D) dump bin
Answer: D
Diff: 1
Page Ref: 520
Skill: Applied/Comprehensive/Integrative
60) Which of these is not a disadvantage of using audio on a Web site?
A) The downloading time may be long.
B) Consumers may not have the appropriate plug-in.
C) Consumers may view the music as inappropriate.
D) The site may appear to be cluttered.
Answer: D
Diff: 2
Page Ref: 464
Skill: Applied/Comprehensive/Integrative
61) An interactive search engine within a retailer's site ________.
A) enables consumers to shop for a product from any Web page
B) directs a consumer to a manufacturer's site for additional product information
C) directs a consumer to related sites
D) directs a consumer to product testing sites
Answer: A
Diff: 2
Page Ref: 465
Skill: Applied/Comprehensive/Integrative
62) A high degree of online consumers enter the checkout counter and exit without purchasing
goods. This can be due to ________.
A) concern over high shipping and handling costs
B) the difficulty in completing the order format.
C) fear of credit card security.
D) all of the above factors
Answer: D
Diff: 2
Page Ref: 465-466
Skill: Applied/Comprehensive/Integrative

199

63) A small appliance retailer has in-store cooking demonstrations, offers free samples, and lets
consumers try out selected new appliances in an environment that resembles a small kitchen.
This retailer ________.
A) has a theme-setting display
B) practices experiential merchandising
C) utilizes the model stock approach
D) employs functional product groupings
Answer: B
Diff: 2
Page Ref: 467
Skill: Applied/Comprehensive/Integrative
64) A Web site for an espresso machine retailer contains the history of espresso, tips on how to
make an optimal cup of coffee, and recipes featuring espresso coffee. This is an example of
________.
A) ensemble displays
B) co-branding
C) experiential merchandising
D) cross selling
Answer: C
Diff: 2
Page Ref: 523, 520
Skill: Applied/Comprehensive/Integrative
65) Which of the following is an example of experiential merchandising?
A) self-service retailing
B) impulse buying by consumers
C) an interactive video kiosk
D) a centralized returns department
Answer: C
Diff: 1
Page Ref: 523
Skill: Applied/Comprehensive/Integrative
66) A camera shop develops kits for amateurs that include a point-and-shoot camera, memory
card, case, and a separate battery charger. The kit is sold at a discounted price from the price of
the separate components. This concept is an example of ________.
A) a model stock approach
B) scrambled merchandising
C) solutions selling
D) experiential merchandising
Answer: C
Diff: 2
Page Ref: 524
Skill: Applied/Comprehensive/Integrative

200

67) Which of these is an example of solutions selling by a supermarket?


A) placing a weekly menu in a newspaper insert and then stocking all of the required ingredients
in a single location in the store
B) selling seasonal merchandise such as outdoor grills at low prices
C) having in-store sampling of its private brands
D) opening longer hours during pre-holiday time periods
Answer: A
Diff: 2
Page Ref: 524
Skill: Applied/Comprehensive/Integrative
68) A kitchen renovation retailer assembles packages of plumbing fixtures, tiles, and window
types that go together to create a given look. The packages are priced on a combined level that
includes labor and materials. This illustrates ________.
A) solutions selling
B) co-branding
C) an enhanced shopping experience
D) impulse buying
Answer: A
Diff: 2
Page Ref: 524
Skill: Applied/Comprehensive/Integrative
69) A co-branding program, such as a Starbucks in a Barnes & Noble store, most closely
resembles ________.
A) an administered marketing arrangement
B) vertical integration
C) a leased department
D) a franchise arrangement
Answer: C
Diff: 2
Page Ref: 524
Skill: Applied/Comprehensive/Integrative
70) A bridal registry is an example of ________.
A) co-branding
B) a wish list program
C) an ensemble display
D) experiential merchandising
Answer: B
Diff: 2
Page Ref: 525
Skill: Applied/Comprehensive/Integrative
71) Atmosphere is based on a store's functional and psychological attributes.
Answer: FALSE
Diff: 1
Page Ref: 508
Skill: Terminology/Concept

201

72) Chain retailers and franchisors are concerned with developing and maintaining a consistent
image across all units.
Answer: TRUE
Diff: 1
Page Ref: 509
Skill: Terminology/Concept
73) Prototype store exteriors are commonly used by independents.
Answer: FALSE
Diff: 1
Page Ref: 509
Skill: Terminology/Concept
74) An appropriate use of dead areas is for personnel space.
Answer: TRUE
Diff: 2
Page Ref: 514, 515
Skill: Terminology/Concept
75) Most retailers devote the largest proportion of their total space to merchandise space.
Answer: FALSE
Diff: 2
Page Ref: 514
Skill: Terminology/Concept
76) A men's clothing store arranges sports jackets by price level. This illustrates a functional
product grouping.
Answer: FALSE
Diff: 1
Page Ref: 515
Skill: Terminology/Concept
77) A store attempting to increase sales of impulse goods should utilize a purchase motivation
product grouping.
Answer: TRUE
Diff: 2
Page Ref: 515
Skill: Terminology/Concept
78) A straight traffic-flow pattern is most appropriate for self-service retailing.
Answer: TRUE
Diff: 2
Page Ref: 516
Skill: Terminology/Concept
79) Browsing throughout a store in an unstructured manner is encouraged in a curving trafficflow pattern.
Answer: TRUE
Diff: 2
Page Ref: 516
Skill: Terminology/Concept

202

80) The sales-productivity ratio approach determines space needs based on assortment
considerations.
Answer: FALSE
Diff: 1
Page Ref: 516
Skill: Terminology/Concept
81) The sales-productivity ratio determines space needs on the basis of a product category's sales
expectations.
Answer: TRUE
Diff: 1
Page Ref: 516
Skill: Terminology/Concept
82) Eye-level display positions are more effective for impulse goods than knee-level positions.
Answer: TRUE
Diff: 2
Page Ref: 519
Skill: Terminology/Concept
83) Cut case displays are commonly used in specialty stores.
Answer: FALSE
Diff: 1
Page Ref: 520
Skill: Terminology/Concept
84) The concept of atmospherics is only applicable to "bricks-and-mortar-based" retailers.
Answer: FALSE
Diff: 2
Page Ref: 520-522
Skill: Terminology/Concept
85) The checkout counter is more complicated for Web retailers than for physical store retailers.
Answer: TRUE
Diff: 1
Page Ref: 521
Skill: Terminology/Concept
86) Atmosphere is not a valid consideration in retail strategy planning for a nonstore retailer.
Answer: FALSE
Diff: 2
Page Ref: 508, 520-522
Skill: Applied/Comprehensive/Integrative
87) Store construction can be facilitated through the use of modular structures and prototype
stores.
Answer: TRUE
Diff: 2
Page Ref: 509
Skill: Applied/Comprehensive/Integrative

203

88) The best areas of a store are assigned to merchandise space.


Answer: FALSE
Diff: 2
Page Ref: 514
Skill: Applied/Comprehensive/Integrative
89) Sales productivity is generally computed on the basis of sales per square foot of merchandise
space.
Answer: FALSE
Diff: 2
Page Ref: 514
Skill: Applied/Comprehensive/Integrative
90) A retailer can increase its sales productivity by increasing the ratio of selling space to total
space.
Answer: TRUE
Diff: 2
Page Ref: 514
Skill: Applied/Comprehensive/Integrative
91) Related-item merchandising is best accomplished through the use of a market segment
product grouping.
Answer: FALSE
Diff: 1
Page Ref: 515
Skill: Applied/Comprehensive/Integrative
92) An ensemble display is an example of a purchase motivation product grouping.
Answer: FALSE
Diff: 1
Page Ref: 515, 519
Skill: Applied/Comprehensive/Integrative
93) In planning a purchase motivation product grouping, a retailer needs to classify retail areas
into low versus high-traffic locations.
Answer: TRUE
Diff: 2
Page Ref: 515
Skill: Applied/Comprehensive/Integrative
94) A straight traffic flow is ideally suited to self-service operations with shopping carts and
centralized checkouts.
Answer: TRUE
Diff: 1
Page Ref: 516
Skill: Applied/Comprehensive/Integrative
95) A firm using the sales-productivity ratio approach to space allocation may develop a product
assortment that does not satisfy consumer one-stop shopping requirements.
Answer: TRUE
Diff: 1
Page Ref: 516
Skill: Applied/Comprehensive/Integrative

204

96) Point-of-purchase displays may be developed by the retailer or provided by manufacturers or


wholesalers.
Answer: TRUE
Diff: 1
Page Ref: 519
Skill: Applied/Comprehensive/Integrative
97) Bookstores utilize closed assortments.
Answer: FALSE
Diff: 1
Page Ref: 519
Skill: Applied/Comprehensive/Integrative
98) Dump bin displays contain closed assortments.
Answer: FALSE
Diff: 2
Page Ref: 519, 520
Skill: Applied/Comprehensive/Integrative
99) A major advantage of a Web site in comparison to a traditional catalog is the ability to have
almost unlimited space to present product assortments, displays, and information.
Answer: TRUE
Diff: 1
Page Ref: 520-522
Skill: Applied/Comprehensive/Integrative
100) A Web-based bridal registry is an example of solutions selling.
Answer: TRUE
Diff: 2
Page Ref: 524
Skill: Applied/Comprehensive/Integrative
101) a.
Distinguish between retail image and atmosphere.
b. Explain how retail image is generated for a direct marketer.
Diff: 1
Page Ref: 505-506, 508-509
102) a.
What special problems do chains have with respect to retail image?
b. What special problems do franchisors have with respect to retail image?
Diff: 2
Page Ref: 509
103) a.
Distinguish among selling space, merchandise space, personnel space, and
customer space.
b. Describe how the allocation of these space components vary by low-end versus high-end
retailers.
Diff: 1
Page Ref: 514-515
104) a.
Distinguish among functional, purchase motivation, market segment, and
storability product groupings.
b. In what situation would you use each technique?
Diff: 1
Page Ref: 515

205

105) a.
Contrast the advantages and disadvantages of straight versus curving traffic flows.
b. In what situations would you use each technique?
Diff: 1
Page Ref: 516-517
106) a.
What are the advantages of a retailer's determining space needs using a model
stock approach? ...the sales-productivity ratio?
b. What are the disadvantages of a retailer's determining space needs using a model stock
approach? ...the sales-productivity ratio?
Diff: 1
Page Ref: 516
107) Discuss the advantages and disadvantages of the use of assortment displays, theme-setting
displays, and rack displays for a men's clothing retailer.
Diff: 1
Page Ref: 519
108) a.
Describe the atmospherics-related advantages of Web-based retailers in
comparison to traditional store retailers.
b. Describe the atmospherics-related disadvantages of Web-based retailers in comparison to
traditional store retailers.
Diff: 1
Page Ref: 520-522
109) Develop a plan to reduce the number of Web-based shoppers who enter the checkout, but
who do not purchase anything.
Diff: 2
Page Ref: 521
110) Develop an experiential merchandising program for a clothing store catering to college
students.
Diff: 2
Page Ref: 523
111) Develop a solutions selling program for a regional supermarket chain.
Diff: 2
Page Ref: 523
112) Develop a community relations strategy for a local Italian restaurant that is located within
one mile of your college/university. Most of the patrons of the restaurant are college students,
faculty, and administrators.
Diff: 2
Page Ref: 525-526

206

Chapter 19
1) Any communication by a retailer that informs, persuades, and/or reminds the target market
about any aspect of that firm is ________.
A) advertising
B) public relations
C) retail promotion
D) the retail communication channel
Answer: C
Diff: 1
Page Ref: 530
Skill: Terminology/Concept
2) The four elements of ________ are advertising, public relations, personal selling, and sales
promotion.
A) communication
B) selling
C) communication channel
D) promotion
Answer: D
Diff: 1
Page Ref: 530
Skill: Terminology/Concept
3) Which form of promotion has media payment, a nonpersonal presentation, out-of-store mass
media, and an identified sponsor?
A) sales promotion
B) advertising
C) public relations
D) personal selling
Answer: B
Diff: 1
Page Ref: 530
Skill: Terminology/Concept
4) Which retailer has the highest dollar advertising expenditures among U.S. retailers?
A) Sears Holding
B) McDonald's
C) Atlantic & Pacific Tea Company
D) General Motors Cooperative Dealer Association
Answer: A
Diff: 1
Page Ref: 531
Skill: Terminology/Concept

207

5) A major difference between the advertising strategies of retailers and manufacturers is that
retailers ________.
A) are more prone to use broadcast media than manufacturers
B) typically have broader geographic target markets
C) have more geographically concentrated target markets than manufacturers
D) are more concerned with image-related advertising
Answer: C
Diff: 1
Page Ref: 531
Skill: Terminology/Concept
6) Which type of small retailer can have a geographically dispersed trading area?
A) convenience store
B) variety store
C) direct seller
D) direct marketer
Answer: D
Diff: 2
Page Ref: 531
Skill: Terminology/Concept
7) In cooperative advertising, ________.
A) a trade association promotes the advantages of a new product in order to increase sales
B) two or more channel members share promotional costs
C) a retailer promotes a manufacturer's brand as being on sale
D) a retailer promotes its own dealer brand as being on sale
Answer: B
Diff: 1
Page Ref: 531
Skill: Terminology/Concept
8) A major advantage of advertising as a retail medium is that ________.
A) there are no media costs
B) it can focus on the needs of individual customers
C) the costs per viewer, reader, or listener are low
D) credibility is high
Answer: C
Diff: 1
Page Ref: 532
Skill: Terminology/Concept
9) Which characteristic of advertising as a retail medium is correct?
A) Media rates are generally higher for retailers than manufacturers.
B) Since a large number of media are available, retailers are generally able to match a medium to
a target market.
C) A strength of advertising is its ability to tailor messages to specific target markets.
D) Advertising messages are generally long (in terms of time or space).
Answer: B
Diff: 1
Page Ref: 532
Skill: Terminology/Concept

208

10) A major disadvantage of advertising as a retail medium is that ________.


A) many media utilize standardized messages that are inflexible
B) few alternative media are generally available
C) the costs of reaching a viewer, reader, or listener are high
D) retail control over message timing and content is low
Answer: A
Diff: 1
Page Ref: 533
Skill: Terminology/Concept
11) Retailers spend the highest proportion of their advertising budgets in which medium?
A) telephone directories
B) direct mail
C) newspapers
D) flyers/circulars
Answer: C
Diff: 1
Page Ref: 533
Skill: Terminology/Concept
12) A medium's circulation covers a broader geographic region than that containing the retailer's
target market. This concept is referred to as ________.
A) waste
B) lead time
C) trading-area overlap
D) throw-away rate
Answer: A
Diff: 2
Page Ref: 535
Skill: Terminology/Concept
13) An advantage of a Yellow Pages listing is the ________.
A) free listing
B) absence of clutter
C) long medium life
D) alphabetical listing that does not contain competing retailers in the same section
Answer: C
Diff: 1
Page Ref: 535
Skill: Terminology/Concept
14) A characteristic of direct mail is a ________.
A) high response rate
B) low throw-away rate
C) highly targeted audience
D) long lead time
Answer: C
Diff: 1
Page Ref: 535
Skill: Terminology/Concept

209

15) Which medium is associated with a low response rate and a high throwaway rate?
A) local magazine
B) weekly newspaper
C) daily newspaper
D) direct mail
Answer: D
Diff: 1
Page Ref: 535
Skill: Terminology/Concept
16) Which medium is characterized by large-size ads and zoning difficulties?
A) flyers/circulars
B) telephone directories
C) outdoor advertising
D) direct mail
Answer: C
Diff: 1
Page Ref: 535
Skill: Terminology/Concept
17) A(n) ________ ad should be used to communicate a new retailer opening in a market area.
A) pioneer
B) reminder
C) competitive
D) institutional
Answer: A
Diff: 1
Page Ref: 536
Skill: Terminology/Concept
18) An advertisement in a local newspaper, featuring low interest-rate financing for consumers
that purchase a top-of-the-line refrigerator, illustrates a(n) ________ ad.
A) institutional
B) competitive
C) reminder
D) pioneer
Answer: B
Diff: 1
Page Ref: 536
Skill: Terminology/Concept
19) Image-related advertising illustrates a(n) ________ advertisement.
A) pioneer
B) reminder
C) competitive
D) institutional
Answer: D
Diff: 1
Page Ref: 536
Skill: Terminology/Concept

210

20) Vertical cooperative advertising agreements are subject to the ________.


A) Consumer Goods Pricing Act
B) Federal Trade Commission Act
C) Robinson-Patman Act
D) Sherman Antitrust Act
Answer: C
Diff: 1
Page Ref: 537
Skill: Terminology/Concept
21) In a horizontal cooperative advertising agreement, ________.
A) a manufacturer (or wholesaler) and a retailer share an ad
B) retailers' payment for an ad is based on their yearly sales of a particular product
C) competing retailers share an ad and its cost
D) two or more retailers share an ad
Answer: D
Diff: 2
Page Ref: 537
Skill: Terminology/Concept
22) A major difference between advertising and publicity is based upon ________.
A) media used
B) media payment
C) message flexibility
D) message type
Answer: B
Diff: 1
Page Ref: 537
Skill: Terminology/Concept
23) A major advantage of public relations versus advertising is ________.
A) the source of the communication is more credible
B) the high control over a message and its timing, placement, and coverage
C) the high degree of message customization
D) no costs for a public relations staff
Answer: A
Diff: 1
Page Ref: 538
Skill: Terminology/Concept
24) A major disadvantage of public relations versus advertising is ________.
A) high costs for message time or space
B) little retailer control over a message and its timing, placement, and coverage
C) no carryover effects
D) less attention paid to public relations than to clearly identified advertisements
Answer: B
Diff: 1
Page Ref: 538
Skill: Terminology/Concept

211

25) A major advantage of personal selling is ________.


A) the immediate feedback that is provided
B) the large number of consumers that can be reached at one point in time
C) the low costs of reaching each target customer
D) low total costs for salaries, travel, and entertainment
Answer: A
Diff: 1
Page Ref: 539
Skill: Terminology/Concept
26) Which type of salesperson is generally associated with a self-service retail environment?
A) a sales engineer
B) a closer
C) an order-taking salesperson
D) an order-getting salesperson
Answer: C
Diff: 1
Page Ref: 540
Skill: Terminology/Concept
27) PMs are best defined as ________.
A) promotional allowances paid to retailers by manufacturers and wholesalers for shelf space
B) rebates and other discounts given to buyers to induce their purchase of a manufacturer's
products
C) point-of-purchase promotions developed by manufacturers to increase store traffic
D) additional compensation paid to retail salespeople by a manufacturer based on sales of its
products
Answer: D
Diff: 1
Page Ref: 540
Skill: Terminology/Concept
28) The promotion form that focuses on short-run sales performance is ________.
A) advertising
B) public relations
C) sales promotion
D) personal selling
Answer: C
Diff: 1
Page Ref: 542
Skill: Terminology/Concept
29) Which sales promotion form seeks to develop store loyalty?
A) prizes
B) referral gifts
C) sweepstakes
D) frequent shopper programs
Answer: D
Diff: 1
Page Ref: 544-545
Skill: Terminology/Concept

212

30) The most complex method of establishing an overall promotional budget is the ________.
A) objective-and-task method
B) percentage-of-sales technique
C) incremental method
D) all-you-can-afford method
Answer: A
Diff: 1
Page Ref: 549
Skill: Terminology/Concept
31) The overall stages in a consumer's purchase process from awareness to purchase is depicted
in the ________.
A) consumer brand choice model
B) hierarchy of effects model
C) brand loyalty model
D) Howard-Sheth model
Answer: B
Diff: 1
Page Ref: 550
Skill: Terminology/Concept
32) Which promotional forms are ideal for generating awareness in the hierarchy of effects
model?
A) advertising and public relations
B) advertising and sales promotion
C) personal selling and sales promotion
D) personal selling and public relations
Answer: A
Diff: 1
Page Ref: 550
Skill: Terminology/Concept
33) The efficiency of a medium can be most accurately assessed through evaluating its
________.
A) waste circulation or coverage
B) cost per thousand
C) passalong rate
D) paid circulation
Answer: B
Diff: 2
Page Ref: 551
Skill: Terminology/Concept

213

34) Extensive media coverage refers to ________.


A) low reach with high frequency
B) low reach with low frequency
C) high reach with low frequency
D) high reach with high frequency
Answer: C
Diff: 2
Page Ref: 552
Skill: Terminology/Concept
35) In a massed advertising effort, ________.
A) reach is stressed over frequency
B) salesmanship is stressed
C) retailers promote throughout the year
D) promotion is concentrated in seasonal periods
Answer: D
Diff: 1
Page Ref: 533
Skill: Terminology/Concept
36) A difficulty associated with the use of national magazines by an independent retailer with a
narrow trading area is ________.
A) high waste in geographic coverage
B) low control over timing and placement of advertisements
C) long lead time
D) absence of discounts based on the number of insertions
Answer: A
Diff: 2
Page Ref: 553
Skill: Applied/Comprehensive/Integrative
37) Manufacturers utilize cooperative advertising agreements with retailers ________.
A) to decrease retailer waste in advertising
B) as a means of channel control
C) to take advantage of the lower rates offered to retailers
D) to comply with the Robinson-Patman Act
Answer: C
Diff: 2
Page Ref: 531
Skill: Applied/Comprehensive/Integrative
38) An important advantage of advertising in comparison to personal selling is the ________.
A) high ability to persuade a consumer
B) high message flexibility
C) low cost of reaching a target market member
D) low waste circulation
Answer: C
Diff: 1
Page Ref: 532
Skill: Applied/Comprehensive/Integrative

214

39) Which medium offers a retailer the greatest control in reaching a targeted geographic area?
A) Yellow Pages
B) direct mail
C) daily newspapers
D) radio
Answer: B
Diff: 2
Page Ref: 535
Skill: Applied/Comprehensive/Integrative
40) Which medium has the highest message permanence?
A) radio
B) direct mail
C) weekly newspaper
D) telephone directories
Answer: D
Diff: 1
Page Ref: 535
Skill: Applied/Comprehensive/Integrative
41) A local computer retailer desires to reach a targeted audience consisting of past customers.
The retailer is offering "computer tune-ups" consisting of removal of duplicate files, virus
scanning and removal, and performing diagnostic work on the system's major hardware
components. Which medium is most appropriate in reducing waste?
A) direct mail
B) shopper
C) radio
D) daily newspaper
Answer: A
Diff: 2
Page Ref: 535
Skill: Applied/Comprehensive/Integrative
42) The creation of regional or zoned editions, superior graphics, and the availability of color
have increased retailers' use of ________.
A) telephone directories
B) magazines
C) outdoor advertising
D) direct mail
Answer: B
Diff: 2
Page Ref: 535
Skill: Applied/Comprehensive/Integrative

215

43) Which type of retailer ad is most likely to include a product's price?


A) institutional advertisement
B) pioneer advertisement
C) reminder advertisement
D) competitive advertisement
Answer: D
Diff: 1
Page Ref: 536
Skill: Applied/Comprehensive/Integrative
44) The short space and long lead time make outdoor advertising least appropriate for what form
of advertisements?
A) institutional
B) pioneer
C) reminder
D) competitive
Answer: D
Diff: 2
Page Ref: 536
Skill: Applied/Comprehensive/Integrative
45) A retailer stresses its community service in a current advertising campaign. This illustrates
a(n) ________ ad.
A) institutional
B) pioneer
C) reminder
D) competitive
Answer: A
Diff: 1
Page Ref: 536
Skill: Applied/Comprehensive/Integrative
46) Since vertical cooperative advertising agreements fall under the scope of the RobinsonPatman Act, a manufacturer ________.
A) must offer similar agreements to all retailers on a proportionate basis of their purchases
B) cannot offer cooperative advertising agreements to competing merchants
C) must reduce other allowances by the size of the cooperative advertising allowance
D) must require that all ads meet set criteria in terms of size and adherence to suggested list price
Answer: A
Diff: 2
Page Ref: 537
Skill: Applied/Comprehensive/Integrative

216

47) Noncompeting retailers can share advertisements in media with broad geographic circulation.
This strategy represents a ________.
A) competitive advertisement
B) pioneer advertisement
C) vertical cooperative advertising agreement
D) horizontal cooperative advertising agreement
Answer: D
Diff: 1
Page Ref: 537
Skill: Applied/Comprehensive/Integrative
48) The major strategic difference between advertising and public relations relates to ________.
A) identification of the sponsor
B) control over the message by the marketer
C) the method of presentation
D) effectiveness
Answer: B
Diff: 1
Page Ref: 537, 530-531
Skill: Applied/Comprehensive/Integrative
49) If advertising and personal selling are classified as marketer-dominated, then public relations
is classified as ________-dominated.
A) media
B) consumer
C) government
D) trade association
Answer: A
Diff: 2
Page Ref: 537
Skill: Applied/Comprehensive/Integrative
50) The effectiveness of a retailer's public relations department can be determined by evaluating
________.
A) its overall budget
B) store recognition levels
C) store image positioning by target-market customers
D) the comparable value in space if generated by advertising
Answer: D
Diff: 2
Page Ref: 538
Skill: Applied/Comprehensive/Integrative
51) Most retail salespersons in self-service operations are ________.
A) sales engineers
B) sales managers
C) order-taking salespersons
D) order-getting salespersons
Answer: C
Diff: 2
Page Ref: 540
Skill: Applied/Comprehensive/Integrative
217

52) Which compensation system is most appropriate for a pure order-taking position?
A) compensation cafeteria
B) PMs
C) straight commission plan
D) straight salary plan
Answer: D
Diff: 2
Page Ref: 540
Skill: Applied/Comprehensive/Integrative
53) While a computer retailer engages in extensive advertising and many consumers come to the
store knowing what camera to purchase, it is concerned that salespeople do not effectively crosssell. The retailer wants to encourage its salespersons to sell software, extra memory, tape-backup
devices, and extended warranties at the same time as the computer purchase. The retailer needs
to attract and motivate ________.
A) order-taking salespersons
B) order-getting salespersons
C) sales engineers
D) sales managers
Answer: B
Diff: 1
Page Ref: 540
Skill: Applied/Comprehensive/Integrative
54) Many retailers like to monitor the use of PMs by manufacturers since ________.
A) PMs may not motivate the salespersons to sell a given brand
B) salespeople may earn too much
C) salespeople may not accurately portray the benefits and limitations of all brands
D) PMs may subject the firm to the Robinson-Patman Act difficulties
Answer: C
Diff: 2
Page Ref: 540
Skill: Applied/Comprehensive/Integrative
55) The canned sales presentation can be distinguished from the need-satisfaction approach by its
________.
A) focus on the customer's demographics
B) high training costs
C) repetitive nature
D) attention to a customer's product-related needs
Answer: C
Diff: 2
Page Ref: 541
Skill: Applied/Comprehensive/Integrative

218

56) The major distinction between the canned sales presentation and the need-satisfaction
approach is based on ________.
A) whether the salesperson tries to close the sale
B) the total time spent with a prospect
C) the method and amount of compensation
D) flexibility demonstrated by the salesperson in his or her sales presentation
Answer: D
Diff: 2
Page Ref: 541
Skill: Applied/Comprehensive/Integrative
57) "Is this your first purchase of a digital single lens reflex camera?" and "What types of lenses
and flash equipment do you own? are examples of questions asked in the ________.
A) canned sales presentation
B) need-satisfaction approach
C) order-taking approach
D) promotional money approach
Answer: B
Diff: 1
Page Ref: 541
Skill: Applied/Comprehensive/Integrative
58) In which type of sales presentation does the salesperson probe the potential customer's needs
in the greeting stage?
A) canned sales presentation
B) need-satisfaction approach
C) point-of-purchase promotion
D) push money
Answer: B
Diff: 1
Page Ref: 541
Skill: Applied/Comprehensive/Integrative
59) "Do you need the car this week or do you want to order one to your specifications?"
illustrates what selling function?
A) demonstration of goods/services
B) sales presentation
C) closing the sale
D) greeting customers
Answer: C
Diff: 2
Page Ref: 541
Skill: Applied/Comprehensive/Integrative

219

60) Which element in the retail promotion mix generally emphasizes short-term sales increases?
A) sales promotion
B) public relations
C) advertising
D) personal selling
Answer: A
Diff: 1
Page Ref: 541
Skill: Applied/Comprehensive/Integrative
61) Which form of sales promotion is commonly used in conjunction with self-service
merchandising?
A) contests
B) point-of-purchase promotion
C) sweepstakes
D) referral gifts
Answer: B
Diff: 2
Page Ref: 543
Skill: Applied/Comprehensive/Integrative
62) The major difference between a contest and a sweepstakes is that ________.
A) contests are aimed at repeat purchases
B) contests are tied to patronage
C) contests require skill while sweepstakes are based on chance
D) sweepstakes may not be legal in some areas
Answer: C
Diff: 1
Page Ref: 544
Skill: Applied/Comprehensive/Integrative
63) Which form of sales promotion is commonly used as part of a relationship retailing program?
A) frequent shopper programs
B) prizes
C) point-of-purchase promotion
D) coupons
Answer: A
Diff: 2
Page Ref: 544-545
Skill: Applied/Comprehensive/Integrative
64) The most difficult task in using the objective-and-task method of promotional budgeting is
________.
A) stating an objective in clear terms
B) determining success of an advertising campaign
C) outlining how each objective can be accomplished
D) determining media costs based upon the media plan
Answer: C
Diff: 2
Page Ref: 549
Skill: Applied/Comprehensive/Integrative

220

65) Which promotional forms are most appropriate for the earliest stages of the hierarchy of
effects?
A) advertising and public relations
B) advertising and sales promotion
C) public relations and sales promotion
D) public relations and personal selling
Answer: A
Diff: 2
Page Ref: 550
Skill: Applied/Comprehensive/Integrative
66) A newspaper has a circulation of 2,000,000 and a per-page rate of $10,000. Its cost per
thousand is ________.
A) $0.50
B) $5.00
C) $20.00
D) $50.00
Answer: B
Diff: 1
Page Ref: 551
Skill: Applied/Comprehensive/Integrative
67) A magazine with a circulation of 10,000,000 has a per-page rate of $50,000. Seventy percent
of the magazine's readers are target customers for the retailer. The retailer's real cost per thousand
for this magazine is ________.
A) $5.00
B) $7.00
C) $7.14
D) $10.00
Answer: C
Diff: 2
Page Ref: 551
Skill: Applied/Comprehensive/Integrative
68) In massed promotion effort, ________.
A) reach is regular throughout the year
B) reach is irregular throughout the year
C) frequency is regular throughout the year
D) frequency is irregular throughout the year
Answer: D
Diff: 2
Page Ref: 553
Skill: Applied/Comprehensive/Integrative

221

69) Massed promotion effort is most appropriate for retailers ________.


A) with high customer loyalty
B) with low advertising budgets
C) favoring reach over frequency
D) with high seasonality
Answer: D
Diff: 2
Page Ref: 553
Skill: Applied/Comprehensive/Integrative
70) The most appropriate promotional schedule for a pioneer ad is ________.
A) peaked advertising
B) the hierarchy-of-effects schedule
C) massed promotion effort
D) distributed advertising effort
Answer: C
Diff: 2
Page Ref: 553
Skill: Applied/Comprehensive/Integrative
71) Advertising, public relations, personal selling, and sales promotion are the four elements of
retail promotion.
Answer: TRUE
Diff: 1
Page Ref: 53
Skill: Terminology/Concept
72) Advertising is characterized based on payment for media, a nonpersonal presentation, and an
identified sponsor.
Answer: TRUE
Diff: 1
Page Ref: 530
Skill: Terminology/Concept
73) Most smaller retailers cannot use national media as readily as a manufacturer.
Answer: TRUE
Diff: 2
Page Ref: 531
Skill: Terminology/Concept
74) Media charges are generally lower for manufacturers than for retailers.
Answer: FALSE
Diff: 1
Page Ref: 531
Skill: Terminology/Concept
75) More retail advertising is in radio than any other medium.
Answer: FALSE
Diff: 1
Page Ref: 533
Skill: Terminology/Concept

222

76) Direct mail is characterized by its low throwaway rate and low clutter.
Answer: FALSE
Diff: 1
Page Ref: 535
Skill: Terminology/Concept
77) Institutional advertising seeks to increase a retailer's short-run sales.
Answer: FALSE
Diff: 2
Page Ref: 536
Skill: Terminology/Concept
78) In a horizontal cooperative advertising agreement, two or more noncompeting retailers share
an advertisement.
Answer: TRUE
Diff: 1
Page Ref: 537
Skill: Terminology/Concept
79) There is no identified commercial sponsor in public relations.
Answer: TRUE
Diff: 1
Page Ref: 537
Skill: Terminology/Concept
80) On the average, order-getting salespeople are higher paid and more skilled than order-taking
salespersons.
Answer: TRUE
Diff: 2
Page Ref: 540
Skill: Terminology/Concept
81) The canned sales presentation approach to retail selling tailors the presentation on the basis
of consumer comments, questions, and concerns.
Answer: FALSE
Diff: 1
Page Ref: 541
Skill: Terminology/Concept
82) Sales promotion has a short-run orientation.
Answer: TRUE
Diff: 1
Page Ref: 541
Skill: Terminology/Concept
83) The objective-and-task method of establishing an overall promotional budget is likely to
provide too much funds in periods of high sales and too few funds in periods of low sales.
Answer: FALSE
Diff: 1
Page Ref: 549
Skill: Terminology/Concept

223

84) The first step in the hierarchy of effects is knowledge.


Answer: FALSE
Diff: 1
Page Ref: 550
Skill: Terminology/Concept
85) Evaluating the results of a promotional campaign are simplified when promotional goals are
clearly stated in advance.
Answer: TRUE
Diff: 2
Page Ref: 554
Skill: Terminology/Concept
86) For many retailers with small trading areas, daily newspapers and weekly magazines contain
a high percent of waste circulation.
Answer: TRUE
Diff: 2
Page Ref: 533
Skill: Applied/Comprehensive/Integrative
87) The lead time for Yellow Pages is relatively short.
Answer: FALSE
Diff: 1
Page Ref: 535
Skill: Applied/Comprehensive/Integrative
88) The market coverage of direct mail is controlled by the retailer.
Answer: TRUE
Diff: 2
Page Ref: 535
Skill: Applied/Comprehensive/Integrative
89) Outdoor advertising is especially suitable for competitive advertisements.
Answer: FALSE
Diff: 1
Page Ref: 535
Skill: Applied/Comprehensive/Integrative
90) Institutional advertisements typically include name brands, prices, and style/color
availability.
Answer: FALSE
Diff: 1
Page Ref: 536
Skill: Applied/Comprehensive/Integrative
91) Since horizontal cooperative advertising agreements are within the scope of the RobinsonPatman Act, they must be offered to all competing retailers on a proportionate basis.
Answer: FALSE
Diff: 2
Page Ref: 537
Skill: Applied/Comprehensive/Integrative

224

92) Vertical cooperative advertising agreements are commonly used by members of a chamber of
commerce or shopping center retail association in a joint promotion.
Answer: FALSE
Diff: 2
Page Ref: 537
Skill: Applied/Comprehensive/Integrative
93) A basic managerial distinction between advertising and public relations is based on degree of
retailer control.
Answer: TRUE
Diff: 2
Page Ref: 537
Skill: Applied/Comprehensive/Integrative
94) Order-getting salespersons are most likely to engage in cross-selling and trading-up of
customers.
Answer: TRUE
Diff: 1
Page Ref: 540
Skill: Applied/Comprehensive/Integrative
95) The use of PMs by manufacturers may result in channel conflict due to a retail salesperson's
divided loyalty.
Answer: TRUE
Diff: 2
Page Ref: 540
Skill: Applied/Comprehensive/Integrative
96) The canned sales presentation approach more closely fulfills the retailing concept than the
need-satisfaction approach.
Answer: FALSE
Diff: 1
Page Ref: 541
Skill: Applied/Comprehensive/Integrative
97) Since sales promotion seeks to increase short-term sales, it is easier to determine the success
of sales promotion than of institutional advertising.
Answer: TRUE
Diff: 2
Page Ref: 542
Skill: Applied/Comprehensive/Integrative
98) Frequent shopper programs are part of a relationship retailing program.
Answer: TRUE
Diff: 2
Page Ref: 544-545
Skill: Applied/Comprehensive/Integrative
99) A magazine has a circulation of 3,000,000 and a per-page ad rate of $100,000. Its cost per
thousand is $33.33.
Answer: TRUE
Diff: 2
Page Ref: 551
Skill: Applied/Comprehensive/Integrative

225

100) A magazine has a circulation of 3,000,000, a per-page ad rate of $100,000, and waste of 30
percent. Its real cost per thousand is $57.33.
Answer: FALSE
Diff: 2
Page Ref: 551
Skill: Applied/Comprehensive/Integrative
101) Describe the major differences between retailers' and manufacturers' advertising strategies.
Diff: 1
Page Ref: 551
102) What are the advantages and disadvantages of a reliance on advertising as a promotional
type from the perspective of a small, local retail chain?
Diff: 2
Page Ref: 532-533
103) What are the benefits to each channel member in using a vertical cooperative advertising
agreement? ...a horizontal cooperative advertising agreement?
Diff: 1
Page Ref: 537
104) Develop a vertical cooperative agreement to ensure that a manufacturer's advertising goals
are being achieved.
Diff: 2
Page Ref: 537
105) How can a retailer determine the effectiveness of its public relations program?
Diff: 1
Page Ref: 538
106) a.
What is the proper role of an order-taking salesperson in a seasonal furniture
department of a department store?
b. What is the proper role of an order-getting salesperson in a seasonal furniture department of a
department store?
Diff: 2
Page Ref: 540
107) a.
"The need-satisfaction approach best represents the marketing concept applied to
retailing." Explain this statement.
b. Under what circumstances should retail salespersons use the canned sales approach?
Diff: 2
Page Ref: 540
108) Develop a promotional budget for a family-oriented Italian restaurant located three blocks
from your college/university. Use the all-you-can afford approach, the incremental method, and
the objective-and-task method. While the restaurant is very popular for phone orders over the
weekend, sales are comparatively slow on weekday evenings and during lunch times.
Diff: 2
Page Ref: 548-549
109) a.
Describe the importance of the hierarchy of effects to a retailer.
b. What types of promotions would you use at each stage? Explain.
Diff: 1
Page Ref: 550

226

110) a.
Differentiate between the cost per thousand criterion versus the cost per thousand
(target market) criterion.
b. How can a retailer determine the amount of waste circulation?
Diff: 1
Page Ref: 551
111) a.
Describe the importance of both reach and frequency in terms of media choice.
b. How can a retailer increase both reach and frequency with a constant budget?
Diff: 1
Page Ref: 552
112) Under what circumstances would a retailer utilize a massed advertising effort? ...a
distributed advertising effort? Explain your answers.
Diff: 2
Page Ref: 552-553

227

Chapter 20
1) To be successful, strategy planning should be ________.
A) conducted on a centralized basis
B) conducted on a decentralized basis
C) conducted on an ongoing basis
D) short run in orientation
Answer: C
Diff: 1
Page Ref: 568
Skill: Terminology/Concept
2) Which of the following is not a fundamental factor in developing and implementing an
integrated retail strategy?
A) reducing costs
B) scenario analysis
C) performance measures
D) defining productivity
Answer: A
Diff: 1
Page Ref: 569, 570
Skill: Terminology/Concept
3) Which type of retail plan process increases the involvement of retail buyers and sales
managers?
A) centralized
B) horizontal
C) top-down
D) bottom-up
Answer: D
Diff: 2
Page Ref: 569
Skill: Terminology/Concept
4) A sales opportunity grid evaluates new opportunities on the basis of ________.
A) net profit in specific time periods
B) retail price
C) operating costs
D) sales revenues
Answer: A
Diff: 1
Page Ref: 569
Skill: Terminology/Concept

228

5) Sales per square foot and gross margin per square foot are examples of ________.
A) a retail audit
B) retail objectives
C) specific activities
D) performance measures
Answer: D
Diff: 1
Page Ref: 573
Skill: Terminology/Concept
6) Industry norms for performance measures are important to ________.
A) determine company profitability
B) evaluate company performance on the basis of industry benchmarks
C) assign fixed costs to various departments
D) compute direct product profitability
Answer: B
Diff: 2
Page Ref: 573
Skill: Terminology/Concept
7) In benchmarking, a retailer ________.
A) compares its efficiency to those of comparable retailers
B) evaluates its performance relative to its plans
C) studies its customer satisfaction measure using the American Customer Satisfaction Index
(ACSI)
D) sets its own standards and measures its performance based on the achievements of its sector
of retailing, specific competitors, high-performance firms, and/or the prior actions of the
company itself
Answer: D
Diff: 1
Page Ref: 573
Skill: Terminology/Concept
8) Which statement concerning benchmarking is not correct?
A) Benchmarking data is available from government, trade magazines, and other sources.
B) A retailer should seek to benchmark its performance against high-performance firms
regardless of industry.
C) Benchmarking is only suitable for large retailers.
D) Retailers can benchmark their performance against retailers and nonretailers.
Answer: C
Diff: 2
Page Ref: 573
Skill: Terminology/Concept

229

9) Which statement concerning the American Customer Satisfaction Index (ACSI) is not correct?
A) Fast-food franchises typically receive the highest ACSI scores.
B) The ACSI is based on an ongoing study.
C) The ASCI index is based on a scale of 0 to 100.
D) The retailer with the highest 2001 satisfaction scores was Publix.
Answer: A
Diff: 2
Page Ref: 574-576
Skill: Terminology/Concept
10) Which is not a component of SERVQUAL?
A) reliability
B) retail image
C) assurance
D) responsiveness
Answer: B
Diff: 1
Page Ref: 576
Skill: Terminology/Concept
11) The retail performance index measures a retailer's performance on the basis of ________.
A) revenue and profit growth and return on assets
B) return on equity
C) same store sales growth
D) gross margin return on investment (GMROI)
Answer: A
Diff: 1
Page Ref: 577
Skill: Terminology/Concept
12) A retailer compares its actual performance against potential performance and then determines
the areas in which it must improve. This illustrates ________.
A) gap analysis
B) variance analysis
C) benchmarking
D) strategic planning
Answer: A
Diff: 1
Page Ref: 578
Skill: Terminology/Concept
13) The use of low, moderate, and high interest rates as variables in a retail plan for a major
appliance retailer illustrates ________.
A) gap analysis
B) benchmarking
C) strategic planning
D) scenario analysis
Answer: D
Diff: 2
Page Ref: 580
Skill: Terminology/Concept

230

14) Contingency plans should be based directly on ________.


A) gap analysis
B) benchmarking
C) scenario analysis
D) strategic planning
Answer: C
Diff: 2
Page Ref: 580
Skill: Terminology/Concept
15) "What if" planning, based on alternative scenarios, is called ________.
A) scenario analysis
B) contingency planning
C) strategy planning
D) benchmarking
Answer: B
Diff: 1
Page Ref: 580
Skill: Terminology/Concept
16) An investigation of a retailer's total retailing effort or some aspect of it is a ________.
A) retail audit
B) situation analysis
C) retail strategic plan
D) retail information system
Answer: A
Diff: 1
Page Ref: 581
Skill: Terminology/Concept
17) The purpose of ________ is to study what a retailer is presently doing, appraise performance,
and make recommendations for the future.
A) benchmarking
B) gap analysis
C) scenario analysis
D) a retail audit
Answer: D
Diff: 1
Page Ref: 581
Skill: Terminology/Concept
18) The first step in undertaking a retail audit is ________.
A) conducting the audit
B) determining who does the audit
C) determining when and how often the audit is conducted
D) developing audit form(s)
Answer: B
Diff: 1
Page Ref: 581-582
Skill: Terminology/Concept

231

19) A company audit specialist is a(n) ________.


A) internal employee whose prime responsibility is the retail audit
B) internal employee who has other responsibilities but may be asked to participate in the retail
audit
C) person who works as a consultant on a fee basis
D) employee that conducts audits on an overtime basis
Answer: A
Diff: 1
Page Ref: 582
Skill: Terminology/Concept
20) An advantage of using a company audit specialist in performing the retail audit is ________.
A) high degree of auditor independence
B) high degree of objectivity
C) level of knowledge about the retailer
D) low cost for a small retailer
Answer: C
Diff: 2
Page Ref: 582
Skill: Terminology/Concept
21) A disadvantage of the use of company audit specialists in conducting a retail audit is the
________.
A) level of knowledge about the retailer
B) ability to see improvement/decline in performance over time
C) ongoing nature of the process
D) cost of the auditing process
Answer: D
Diff: 2
Page Ref: 582
Skill: Terminology/Concept
22) A company department manager is a(n) ________.
A) internal employee who specializes in conducting retail audits
B) internal employee whose prime job is operations management but also may be asked to
participate in the retail audit
C) person who works as a consultant on a fee basis
D) auditing specialist hired by the retailer
Answer: B
Diff: 1
Page Ref: 582
Skill: Terminology/Concept

232

23) An advantage of using company department managers in conducting a retail audit involves
the ________.
A) amount of time that can be committed to the auditing process
B) objectivity in reporting concerns
C) direct cost of the auditing process
D) full-time commitment to the auditing responsibility
Answer: C
Diff: 2
Page Ref: 582
Skill: Terminology/Concept
24) Outside auditors are ________.
A) internal personnel who specialize in conducting retail audits
B) internal employees who have other responsibilities but may be asked to participate in the
retail audit
C) people who work as consultants on a fee basis
D) employees of an accounting firm
Answer: C
Diff: 1
Page Ref: 582
Skill: Terminology/Concept
25) An advantage of the use of an outside auditor in the auditing process is ________.
A) the level of knowledge about the retailer
B) objectivity in reporting concerns
C) the hourly costs of the auditing process
D) the ongoing nature of auditing
Answer: B
Diff: 2
Page Ref: 582
Skill: Terminology/Concept
26) An appropriate time to conduct a retail audit of a firm's accounting system is ________.
A) at the time of a complete physical inventory
B) during the peak sales period
C) when top management is unavailable
D) during an off-season
Answer: A
Diff: 1
Page Ref: 582
Skill: Terminology/Concept
27) A retail audit should be conducted ________.
A) every 3 months
B) at least annually
C) every 3 years
D) every 5 years
Answer: B
Diff: 1
Page Ref: 582
Skill: Terminology/Concept

233

28) A retail strategy audit is also referred to as a ________ audit.


A) disguised
B) nondisguised
C) horizontal
D) vertical
Answer: C
Diff: 1
Page Ref: 583
Skill: Terminology/Concept
29) A horizontal retail audit ________.
A) evaluates the interrelationship of each retail strategy element
B) is specialized in nature
C) evaluates the overall environment facing a retailer
D) specializes in evaluating support services such as retail information systems
Answer: A
Diff: 1
Page Ref: 583
Skill: Terminology/Concept
30) A retail audit that focuses on one area of a retailer's strategy mix is a ________ retail audit.
A) disguised
B) nondisguised
C) horizontal
D) vertical
Answer: D
Diff: 1
Page Ref: 583
Skill: Terminology/Concept
31) A vertical retail audit ________.
A) evaluates the interrelationship of each retail strategy element
B) is specialized in nature
C) evaluates the overall environment facing a retailer
D) specializes in evaluating support services such as retail information systems
Answer: B
Diff: 1
Page Ref: 583
Skill: Terminology/Concept
32) Audit forms generally resemble ________.
A) management reports
B) questionnaires
C) computer printouts
D) survey research data
Answer: B
Diff: 2
Page Ref: 583-584
Skill: Terminology/Concept

234

33) In a nondisguised audit, ________.


A) consumers are aware an audit is taking place
B) results of the audit are not given to management
C) the real purpose of the audit is told to employees, but not customers
D) store employees are aware that an audit is taking place
Answer: D
Diff: 1
Page Ref: 584
Skill: Terminology/Concept
34) Which of the following should be audited when a store is open?
A) matching of posted and actual prices for goods
B) waiting time at checkout lines
C) inventory recordkeeping
D) employee records
Answer: B
Diff: 1
Page Ref: 584
Skill: Terminology/Concept
35) Which of the following should be audited when a store is closed?
A) employee records
B) waiting time on checkout lines
C) vertical transportation adequacy
D) parking lot adequacy
Answer: A
Diff: 1
Page Ref: 584
Skill: Terminology/Concept
36) The opposite of a consumerism-based strategy is a retail strategy based on ________.
A) specializing in the sale of private labels to reduce price competition
B) pricing above the market level based on providing consumer convenience
C) caveat emptor
D) high levels of customer service at a high price
Answer: C
Diff: 2
Page Ref: 569
Skill: Applied/Comprehensive/Integrative
37) To be effective, strategic planning needs to be ________.
A) integrated and ongoing
B) centralized
C) decentralized
D) short term in orientation
Answer: A
Diff: 2
Page Ref: 569
Skill: Applied/Comprehensive/Integrative

235

38) Morale of staff is generally improved by the use of ________ planning.


A) top-down
B) bottom-up
C) centralized
D) scenario-based
Answer: B
Diff: 2
Page Ref: 569
Skill: Applied/Comprehensive/Integrative
39) Which planning process is most participative?
A) scenario-based planning
B) centralized planning
C) bottom-up planning
D) top-down planning
Answer: C
Diff: 2
Page Ref: 569
Skill: Applied/Comprehensive/Integrative
40) Which planning process is most in accord with a human resource philosophy that stresses
employee creativity?
A) bottom-up planning
B) top-down planning
C) scenario-based planning
D) centralized planning
Answer: A
Diff: 2
Page Ref: 569
Skill: Applied/Comprehensive/Integrative
41) Complex assumptions about the economy, population forecasts, and competition are best
handled in ________ planning.
A) scenario-based
B) decentralized
C) bottom-up
D) top-down
Answer: D
Diff: 2
Page Ref: 569
Skill: Applied/Comprehensive/Integrative
42) Top-down planning can also be described as ________ planning.
A) centralized
B) decentralized
C) short-term
D) long-term
Answer: A
Diff: 2
Page Ref: 569
Skill: Applied/Comprehensive/Integrative

236

43) Which planning process is most in accord with a human resource philosophy that believes
that employees are basically lazy and need constant direction?
A) bottom-up planning
B) top-down planning
C) scenario-based planning
D) centralized planning
Answer: B
Diff: 2
Page Ref: 569
Skill: Applied/Comprehensive/Integrative
44) A sales opportunity grid evaluates retail good/service alternatives on the basis of ________.
A) sales per square feet
B) gross margin return on inventory investment (GMROI)
C) net profit estimates over short-run time periods
D) net profit estimates over short-, moderate-, and long-term time periods
Answer: D
Diff: 2
Page Ref: 569
Skill: Applied/Comprehensive/Integrative
45) A sales opportunity grid is generally used in conjunction with ________.
A) strategic profit model evaluation
B) scenario analysis
C) direct product profitability analysis
D) gap analysis
Answer: C
Diff: 2
Page Ref: 569
Skill: Applied/Comprehensive/Integrative
46) Slotting allowance fees for a new product can be assessed through ________.
A) computation of a product's markup
B) use of a sales opportunity grid
C) assessing a product's sales potential
D) estimating holding costs
Answer: B
Diff: 2
Page Ref: 569
Skill: Applied/Comprehensive/Integrative
47) Which of the following is generally not part of a sales opportunity grid?
A) markup
B) floor space needed
C) sales estimate
D) cooperative-advertising allowance
Answer: D
Diff: 2
Page Ref: 569-571
Skill: Applied/Comprehensive/Integrative

237

48) In developing performance measures for a retail operation, it is important to ________.


A) use the same measure over time to allow trends to be ascertained
B) use a measure that cannot be directly compared to widely respected secondary data sources
C) develop measures unique to the firm
D) focus on short-run measures
Answer: A
Diff: 1
Page Ref: 573
Skill: Applied/Comprehensive/Integrative
49) Which performance measure is generally not used by small retailers?
A) sales per square foot
B) inventory turnover
C) market share
D) markdown percentage
Answer: C
Diff: 2
Page Ref: 573
Skill: Applied/Comprehensive/Integrative
50) A chain with 100 stores is currently opening between 10 and 12 new stores per year. What
performance measure most accurately reflects continuing sales productivity?
A) total sales
B) sales per store
C) sales per square foot
D) sales per square foot in stores open one year or more
Answer: D
Diff: 2
Page Ref: 573
Skill: Applied/Comprehensive/Integrative
51) Sales per square foot is a poor performance measure for a ________.
A) traditional department store
B) direct marketer
C) supermarket
D) membership club
Answer: B
Diff: 2
Page Ref: 573
Skill: Applied/Comprehensive/Integrative

238

52) A difficulty in using sales per square foot as a performance measure for a rapidly growing
retailer is that it ________.
A) will underestimate performance since a large number of stores will not be open for an entire
year
B) will overestimate performance since a large number of stores will not be open for an entire
year
C) does not take into account the different performance levels of older versus newer stores
D) does not take into account the different performance levels of existing versus acquired stores
Answer: A
Diff: 2
Page Ref: 573
Skill: Applied/Comprehensive/Integrative
53) A traditional department store with a small catalog division has decided to set performance
standards for its telephone-based order takers based on intensively studying the operations of
L.L. Bean and Lands' End. This strategy is an example of ________.
A) scenario analysis
B) gap analysis
C) benchmarking
D) variance analysis
Answer: C
Diff: 1
Page Ref: 573
Skill: Applied/Comprehensive/Integrative
54) The study of "best practices" in retailing is an example of ________.
A) benchmarking
B) scenario analysis
C) gap analysis
D) variance analysis
Answer: A
Diff: 1
Page Ref: 573
Skill: Applied/Comprehensive/Integrative
55) Which statement concerning the American Customer Satisfaction Index is correct?
A) The study is not an accurate representation of U.S. consumers.
B) The total sample size is too low.
C) The ratings of retailers are based on at least 250 interviews with current customers.
D) Department store chains are excluded from the sample of retailers studied.
Answer: C
Diff: 1
Page Ref: 574-575
Skill: Applied/Comprehensive/Integrative

239

56) A service retailer prides itself as always being on time. This most closely resembles which
SERVQUAL area of performance?
A) assurance
B) reliability
C) empathy
D) tangibles
Answer: B
Diff: 1
Page Ref: 576
Skill: Applied/Comprehensive/Integrative
57) A retailer can improve its return on assets component of its retail performance index by
increasing ________.
A) its selection
B) its assortment
C) the number of hours that its stores are open
D) its debt load
Answer: C
Diff: 2
Page Ref: 577
Skill: Applied/Comprehensive/Integrative
58) While a retailer planned to have a 20 percent return on its net worth, actual return on net
worth was only 15 percent. An analysis of this performance measure revealed that the firm's
operating costs were much higher than expected. The analysis performed by the retailer is
________.
A) scenario analysis
B) gap analysis
C) benchmarking
D) variance analysis
Answer: B
Diff: 1
Page Ref: 578
Skill: Applied/Comprehensive/Integrative
59) A sneaker retailer is concerned about rumors of a major competitor opening as many as five
stores in its overall trading area. In response to these rumors, the retailer has developed
competitive response plans. These plans are an example of ________.
A) trigger points
B) gap analysis
C) scenario analysis
D) benchmarking
Answer: C
Diff: 2
Page Ref: 580
Skill: Applied/Comprehensive/Integrative

240

60) Scenarios analysis always involves ________.


A) controllable variables
B) uncontrollable variables
C) direct costs
D) indirect costs
Answer: B
Diff: 1
Page Ref: 580
Skill: Applied/Comprehensive/Integrative
61) The occurrence of an optimistic, pessimistic, and most likely event is part of ________.
A) feedback
B) control
C) scenario analysis
D) gap analysis
Answer: C
Diff: 2
Page Ref: 580
Skill: Applied/Comprehensive/Integrative
62) A retailer systematically reviews its planning process, as well as how it implements its plans.
This review process is called ________.
A) scenario analysis
B) the sales opportunity grid
C) benchmarking
D) the retail audit
Answer: D
Diff: 1
Page Ref: 581
Skill: Applied/Comprehensive/Integrative
63) The retail audit is an example of which stage of the retail planning process?
A) setting objectives
B) situation analysis
C) control
D) feedback
Answer: C
Diff: 2
Page Ref: 581
Skill: Applied/Comprehensive/Integrative
64) A retailer that would not conduct an audit unless it will involve the lowest incremental cost
possible should consider what form of auditing organization?
A) outside auditor
B) disguised auditor
C) company department manager
D) company specialist
Answer: C
Diff: 2
Page Ref: 582
Skill: Applied/Comprehensive/Integrative

241

65) What type of auditor is most appropriate for a small independent retailer?
A) outside auditor
B) company audit specialist
C) company department manager
D) team auditor
Answer: A
Diff: 1
Page Ref: 582
Skill: Applied/Comprehensive/Integrative
66) A retailer requires that an auditor have the greatest level of objectivity due to possible
litigation involving wrong termination of an employee. Which type of auditor should be used?
A) company audit specialist
B) outside auditor
C) company department manager
D) team auditor
Answer: B
Diff: 2
Page Ref: 582
Skill: Applied/Comprehensive/Integrative
67) A retailer is concerned about how well integrated his or her overall strategy is coordinated.
While customer service is excellent and merchandise within the store is distinctive, parking
adequacy is poor and merchandise selection is narrow. What type of retail audit should the
retailer pursue?
A) nondisguised retail audit
B) disguised retail audit
C) vertical retail audit
D) horizontal retail audit
Answer: D
Diff: 1
Page Ref: 583
Skill: Applied/Comprehensive/Integrative
68) The use of mystery shoppers to evaluate a retailer's sales force is an example of a ________.
A) disguised, horizontal retail audit
B) disguised, vertical retail audit
C) nondisguised, horizontal retail audit
D) nondisguised, vertical retail audit
Answer: B
Diff: 1
Page Ref: 583, 584
Skill: Applied/Comprehensive/Integrative

242

69) An evaluation of the extent to which salespeople engage in cross-selling can be best
measured through a ________ retail audit.
A) companywide
B) horizontal
C) disguised
D) nondisguised
Answer: C
Diff: 1
Page Ref: 584
Skill: Applied/Comprehensive/Integrative
70) Which retail audit needs to be conducted when the store is open?
A) efficiency of point-of-sales system in handling markdowns
B) shortage/overage determination
C) assessment of the condition of building and grounds
D) analysis of employee records for completeness
Answer: A
Diff: 1
Page Ref: 584
Skill: Applied/Comprehensive/Integrative
71) To be successful, a retail plan needs to be conducted as an integrated and ongoing process.
Answer: TRUE
Diff: 1
Page Ref: 568
Skill: Terminology/Concept
72) A retail planning organization can be conducted on either a top-down or bottom-up basis.
Answer: TRUE
Diff: 1
Page Ref: 569
Skill: Terminology/Concept
73) Top-down plans involve a more participative management style than bottom-up plans.
Answer: FALSE
Diff: 2
Page Ref: 569
Skill: Terminology/Concept
74) A sales opportunity grid evaluates a product's profitability over several time periods.
Answer: TRUE
Diff: 2
Page Ref: 569
Skill: Terminology/Concept
75) Typically, the most productive strategy is the most expensive strategy.
Answer: FALSE
Diff: 1
Page Ref: 572
Skill: Terminology/Concept

243

76) It is important to use similar-sized retailers as part of benchmarking.


Answer: FALSE
Diff: 1
Page Ref: 573
Skill: Terminology/Concept
77) A retailer should develop its retail categories independent of well-known and respected
secondary sources.
Answer: FALSE
Diff: 1
Page Ref: 574
Skill: Terminology/Concept
78) An accepted measure of customer satisfaction is the American Customer Satisfaction Index
(ACSI).
Answer: TRUE
Diff: 1
Page Ref: 574
Skill: Terminology/Concept
79) Scenario analysis always involves controllable variables.
Answer: FALSE
Diff: 2
Page Ref: 580
Skill: Terminology/Concept
80) A good retail audit is conducted on a regular basis, comprehensive, systematic, and
conducted in an independent manner.
Answer: TRUE
Diff: 2
Page Ref: 581
Skill: Terminology/Concept
81) Major advantages in the use of outside auditors are objectivity and lack of time pressures.
Answer: TRUE
Diff: 2
Page Ref: 582
Skill: Terminology/Concept
82) A retail audit should be implemented at least once in three years.
Answer: FALSE
Diff: 1
Page Ref: 582
Skill: Terminology/Concept
83) The overall performance of a retailer is evaluated in a vertical retail audit.
Answer: FALSE
Diff: 1
Page Ref: 583
Skill: Terminology/Concept
84) A horizontal audit is often referred to as a "retail strategy" audit.
Answer: TRUE
Diff: 1
Page Ref: 583
Skill: Terminology/Concept
244

85) Retail audits generally resemble experimental designs.


Answer: FALSE
Diff: 2
Page Ref: 583-584
Skill: Terminology/Concept
86) Retail planning need only be a one-time occurrence for a successful retailer.
Answer: FALSE
Diff: 1
Page Ref: 569
Skill: Applied/Comprehensive/Integrative
87) Bottom-up plans generally have greater acceptance of line managers due to their
involvement in the retail planning process.
Answer: TRUE
Diff: 2
Page Ref: 569
Skill: Applied/Comprehensive/Integrative
88) A sales opportunity grid can be used in conjunction with direct product profitability analysis.
Answer: TRUE
Diff: 2
Page Ref: 569
Skill: Applied/Comprehensive/Integrative
89) A sales opportunity grid can be used in conjunction with category management.
Answer: TRUE
Diff: 2
Page Ref: 569
Skill: Applied/Comprehensive/Integrative
90) A retailer can improve its retail productivity by changing the merchandise mix, improving
sales training, and utilizing new technologies.
Answer: TRUE
Diff: 2
Page Ref: 571-572
Skill: Applied/Comprehensive/Integrative
91) The strategic profit model is an example of a performance measure.
Answer: TRUE
Diff: 2
Page Ref: 573
Skill: Applied/Comprehensive/Integrative
92) A membership club should benchmark its customer service against comparable-sized clubs
located in the same geographic region.
Answer: TRUE
Diff: 1
Page Ref: 573
Skill: Applied/Comprehensive/Integrative
93) The use of "best practices" in retailing is an example of benchmarking.
Answer: TRUE
Diff: 1
Page Ref: 573
Skill: Applied/Comprehensive/Integrative
245

94) Gap analysis compares variances between planned versus actual performance.
Answer: TRUE
Diff: 1
Page Ref: 578
Skill: Applied/Comprehensive/Integrative
95) The use of outside consultants in conducting a retail audit is most suitable for very small
retail firms.
Answer: TRUE
Diff: 2
Page Ref: 582
Skill: Applied/Comprehensive/Integrative
96) In general, an outside retail auditor is most appropriate when the objectivity of companybased personnel is not of vital concern.
Answer: FALSE
Diff: 2
Page Ref: 582
Skill: Applied/Comprehensive/Integrative
97) A vertical audit typically precedes a horizontal audit.
Answer: FALSE
Diff: 1
Page Ref: 583
Skill: Applied/Comprehensive/Integrative
98) The use of a mystery shopper in assessing sales training involves a nondisguised audit while
the store is open.
Answer: FALSE
Diff: 2
Page Ref: 584
Skill: Applied/Comprehensive/Integrative
99) A nondisguised audit is most appropriate in determining customer-service levels.
Answer: FALSE
Diff: 1
Page Ref: 584
Skill: Applied/Comprehensive/Integrative
100) A retail audit can cause poor employee morale.
Answer: TRUE
Diff: 2
Page Ref: 584-585
Skill: Applied/Comprehensive/Integrative
101) Explain why an effective retail strategy needs to be both integrated and ongoing.
Diff: 1
Page Ref: 569
102) Develop a sales opportunity grid for a new sterling silver polishing cloth to be sold in
supermarkets.
Diff: 2
Page Ref: 569, 574

246

103) Discuss the relationship of the sales opportunity grid to slotting allowances and direct
product profitability.
Diff: 1
Page Ref: 569, 574
104) Outline five performance measures used by supermarket retailers. Describe the importance
of each measure.
Diff: 2
Page Ref: 573-574
105) Outline the principles of benchmarking for a retailer.
Diff: 1
Page Ref: 573
106) Discuss the relevance of incorporating the American Customer Satisfaction Index (ACSI) as
part of a large retailer's overall planning process.
Diff: 1
Page Ref: 574-575
107) a.
Outline three scenarios that can affect the performance of a home-improvement
chain.
b. How can these scenarios be incorporated into a contingency plan?
Diff: 2
Page Ref: 580
108) Under what conditions should an audit be conducted by company specialists? ...company
department managers? ...outside auditors?
Diff: 1
Page Ref: 582
109) Under what circumstances should a retail audit be performed in a disguised manner? ...in a
nondisguised manner?
Diff: 1
Page Ref: 584
110) Develop a horizontal audit form for a new car dealer.
Diff: 2
Page Ref: 583
111) Develop a vertical pricing audit form for a Web-based computer software retailer.
Diff: 2
Page Ref: 583
112) What types of activities should be audited when the retailer is open?...when the retailer is
closed?
Diff: 1
Page Ref: 584

247