Deck 12: Cost Analysis

Question 1

The determining factor of whether an expense is specific or general is:

A) Whether it can be linked to a particular product
B) Whether it is categorized as part of cost of goods sold or part of general and administrative expenses
C) Whether the company used the full-cost or contribution-margin approach
D) The object of measurement being used
E) Whether the focus of the analysis is on the net profit or net expenses

Answer 1

D

Question 2

Allocating costs by sales volume FAILS to:

A) Achieve cost efficiency
B) Increase sales
C) Recognize the purpose of the cost incurred
D) Estimate the profit potential
E) Sum the allocated cost of functional responsibility

Answer 2

C

Question 3

When assessing segment performance, indirect costs should:

A) Be minimized
B) Not be allocated
C) Be quantified and allocated proportionally
D) Be turned into direct costs
E) Be maximized and then subtracted from direct costs

Answer 3

B

Question 4

EMI, a manufacturer of aluminum conveyor belts, allocates costs such as salaries, advertising, warehouse rent, office supplies, and travel expenses. EMI uses the _____ approach to marketing cost analysis.

A) Contribution-margin
B) ROAM
C) Gross-margin
D) Full-contribution
E) Net profit

Question 5

Sales managers are typically LEAST concerned with the profitability of:

A) Regions
B) Customers
C) Divisions
D) Products
E) Salespeople

Question 6

Which of the following is the best example of a natural account?

A) Office supplies
B) Salaries
C) Transportation
D) Raw materials
E) All of the above

Question 7

Which of the following is the best example of a functional account?

A) Order processing
B) Office supplies
C) Rent
D) Electricity
E) Raw materials

Question 8

A manager is using a full-cost approach, then allocating fixed costs on the basis of sales volume as a way of analyzing marketing costs. This method could:

A) Result in a decrease of profitability for the entire company
B) Create an environment that limits the total sales that can be made
C) Create an environment where high-volume customers appear more profitable than they actually are
D) Create an environment where low-volume customers appear more profitable than they actually are
E) All of the above

Question 9

Full-cost approach advocates argue that:

A) Many indirect costs can be assigned based on a demonstrated cost relationship
B) Each unit territory, customer, or product) should bear only the direct costs which it incurred
C) Prorating indirect costs is unnecessary and illogical
D) Companies that use a contribution approach cannot uncover problem areas products, customers, or territories)
E) The terms costs and expenses should be used interchangeably

Question 10

In the contribution margin approach, a ___________ margin is calculated while in a full-cost approach a ________ margin is calculated.

A) Gross; contribution
B) Singular; sequential
C) Contribution; gross
D) Minimal; Maximum
E) Below-cost; above cost

Question 11

The real benefit of a marketing cost analysis is:

A) The way it highlights all inefficiency within a company
B) As a planning tool
C) As an evaluation tool
D) As a decision-making tool for sales managers when they are contemplating terminations or product deletions
E) The opportunity it provides managers to isolate segments of the business that are most profitable as well as those that generate losses

Question 12

A company that manufactures specialized database-gathering software for retailers, physicians, lawyers, and anyone else that needs a database wants to do a marketing cost analysis. If it uses product as its object of measurement, then a particular sales representative's compensation is an example of a(n):

A) General expense and direct cost
B) Indirect cost and general expense
C) Direct cost and specific expense
D) Specific expense and indirect expense
E) None of the Above

Question 13

Contribution-margin advocates argue that:

A) Costs should be distinguished according to where they are incurred
B) All revenues should be reduced by all fixed and variable costs accrued by the segments earning that revenue
C) It is misleading to allocate costs arbitrarily
D) There is no such thing as arbitrary cost allocation
E) The full-cost approach cannot be used to determine the profitability of a product, territory, or customer

Question 14

What is the Return On Assets Managed formula (ROAM)? How can the return from a given business segment be improved?

Question 15

In the contribution margin approach, any excess revenues over costs

A) Equals profits
B) Contributes to common costs and profits
C) Results in negative amortization
D) Offsets activity-based accounts
E) Reduces warehousing and production costs

Question 16

A company that manufactures lighting fixtures wants to do a marketing cost analysis based on customer type (home owner, commercial, and institutional). Which of the following is the best example of a general expense?

A) The cost of setting up a booth at a trade show for home decorators
B) The cost of developing a team selling sales presentation to sell lighting to a chain of hospitals
C) A sales contest to encourage sales reps to locate new commercial buyers
D) The cost of shipping 400 fluorescent light fixtures to a newly built middle school
E) None of the above

Question 17

The warehousing expenses allocated to each salesperson would include:

A) Packaging costs for each product sold
B) The salary of the security guard for the warehouse
C) The rental fee on the forklift used by warehouse personnel
D) The salary of the warehouse supervisor
E) The costs to repair a leak in the warehouse ceiling

Question 18

The first step in conducting a cost analysis is to:

A) Determine whether to use a full-cost or a contribution-margin approach
B) Allocate natural costs to functional cost centers
C) Break costs of revenues into relatively large blocks so that little meaning is lost within each block
D) Determine which segment of the population most needs to be analyzed
E) Specify the purpose for which the study is being done

Question 19

In activity-based costing, the three informational components to the company are:

A) Channels, products, and vendors
B) Customers, channels, and costs
C) Resources, activities, and cost objects
D) Drivers, products, and customers
E) Products, products, and products

Question 20

Which of the following statements about the general procedure used to conduct a cost or profitability analysis is true?

A) The first step in conducting a cost or profitability analysis is to spread the natural account costs to the appropriate functional cost centers
B) Before determining the purpose of the cost analysis, natural cost centers must be identified
C) Before determining the purpose of the profitability analysis, natural account costs must be allocated to functional cost centers
D) Good profitability analyses require that the various costs be partitioned into direct and indirect expenses so the proper aggregations can be made
E) Natural accounts are the only way that costs can be classified for either a profitability or cost analysis

Question 21

What activities are involved when doing marketing cost analysis?

Question 22

How should advertising costs be functionally allocated?

Question 23

All of the following are disadvantages associated with a marketing cost analysis EXCEPT:

A) The high cost of the data needed for the analysis
B) The difficulty associated with determining allocation bases
C) The amount of detail information needed for an analysis
D) The lack of tangible profit as a result of such an analysis
E) The need for a sophisticated computer system to perform such an analysis

Question 24

A company that manufactures livestock trailers, dog houses, portable utility buildings, and carport covers wants to do a marketing cost analysis. Which of the following is the best example of a direct cost?

A) The salary of the company's CEO
B) Travel expenses for its most productive sales rep
C) An ad in Better Homes & Gardens focusing on how well its products are manufactured
D) A brochure describing the features of its livestock trailers
E) A sales contest to support a push growth strategy

Question 25

Describe the three approaches to cost allocation.

Question 26

What are the seven functional cost groups associated with selling?

Question 27

Which of the following statements about the use of ROAM (return on assets managed) is true?

A) ROAM is a highly subjective measure
B) The goal of ROAM is to reach an optimal level of investment
C) Sales managers have eagerly adopted ROAM as a measure of effectiveness
D) ROAM is calculated using contribution margin and asset liquidity
E) ROAM cannot be used as a control device

Question 28

What are the three bases of cost allocation?

Question 29

What is the difference between a direct cost and an indirect cost?

Question 30

What is the difference between natural and functional accounts?

Question 31

ROAM (return on assets managed) equals:

A) Inventory turnover times the net profit
B) Accounts receivable plus inventories plus fixed assets divided by the contribution margin
C) Contribution as a percentage of sales times the asset turnover rate
D) The liquidity ratio divided by the turnover ratio
E) Number of salespeople divided by the number of sales each made

Question 32

Which of the following statements describes a disadvantage associated with marketing cost analyses?

A) The financial data need to be available in great detail
B) Some of the data needed for the analysis is costly to generate
C) Marketing cost analysis requires a sophisticated information system
D) There is sometimes great difficulty involved with allocating expenses to the satisfaction of all concerned
E) All of the above describes disadvantages associated with marketing cost analyses

Question 33

How should direct selling costs be functionally allocated?

Question 34

What is the distinction between a cost and an expense?

Question 35

Describe the four bases for sales profitability analysis? Why do firms tend to neglect profitability analysis.

Question 36

What is the major benefit of marketing cost analysis?

Question 37

What is the difference between specific and general expenses?

Question 38

Why should costs not be allocated based on sales volume?

Question 39

Which of the following statements about how a manufacturer categorizes its costs and expenses is true?

A) A general expense is much like a direct cost in that it cannot be identified directly with a specific object of profit measurement, such as a territory, salesperson, or product
B) All costs are categorized as either direct or indirect-but never as both
C) A salesperson's salary would be a direct cost for his or her territory, but an indirect cost for the product sold
D) Advertising is a direct cost
E) A specific expense is much like a direct expense in that it can generally be identified with a wide range of products and functions

Question 40

What are the four steps in conducting a marketing profitability analysis?

Question 41

Delivery cost for plastic polymer film to shrink wrap yo-yos is an example of a direct cost.

Question 42

The first step in conducting a market profitability analysis is to specify the purpose of the cost study and determine functional cost centers.

Question 43

The cost of renting a warehouse to store component parts for making various sizes of electric generators is an example of a general expense.

Question 44

Critical to an assessment of a customer's lifetime value is an analysis of the costs associated with doing business with that customer.

Question 45

Sales and cost analyses are important tools for a sales manager because they measure the results achieved and the costs of producing those results.

Question 46

Marketing costs analysis cannot help managers identify opportunities for increasing the effectiveness of marketing expenditures.

Question 47

To assess the profit contribution of each salesperson, it is necessary to allocate all costs that bear some causal relationship to selling to each salesperson.

Question 48

One reason that a majority of firms do not use the four bases of profitability (products, territories, salespeople, and customers) is that most accounting systems are not designed to meet the needs of the marketing manager.

Question 49

It is relatively simple to conduct a cost or profitability analysis.

Question 50

If a manufacturer sold 4,500 bicycles and spent $67,500 on advertising expenses for the bicycles during the same period, then the advertising expense allocated to each salesperson would be $15 per bike.

Question 51

__________ reflect the other costs incurred in operating a business, such as advertising.

A) Indirect costs
B) Expenses
C) General expenses
D) Indirect expenses
E) Costs

Question 52

Contribution margin advocates argue that costs should be arbitrarily allocated.

Question 53

The profitability analysis by sales representative includes an allocation for the salary of the manager of the warehouse where the inventory being sold is stored.

Question 54

The real benefit of marketing cost analysis is the opportunity it provides managers to isolate segments of the business that are most profitable as well as those that generate losses.

Question 55

An argument that supports the contribution-margin approach is the fact that most marketing phenomena are highly interrelated.

Question 56

Costs should be allocated according to a product's sales volume.

Question 57

Accounting-based costing (ABC) identifies the cause-and-effect relationship between costs and desired organizational outcomes.

Question 58

Functional cost groups include selling, advertising, storage and shipping, and transportation.

Question 59

One reason marketing managers have neglected consideration of costs is that accounting systems were designed to report aggregate effects of the firm's operations.

Question 60

All sales are achieved at some cost.

Question 61

A key factor in determining the overall profitability of each customer is:

A) The cost of goods produced
B) The pricing authority of salespeople
C) Competitiveness of the derived demand
D) Returns on assets managed
E) Full-cost accounting

Question 62

Marketing cost analysis can be used by sales managers to:

A) Deploy the firm's salespeople most effectively
B) Assess output/input relationships by product
C) Assess output/input relationships by territory
D) Assess output/input relationships by customer
E) All of the above

Question 63

Olivia wants to better allocate her sales force. She gathers sales and cost data and studies the ________________ relationships.

A) Sales/revenue
B) Output/input
C) Cost/input
D) ABC/ROAM
E) All of the above

Question 64

Cost and profitability analyses are much more commonly used than sales analyses.

Question 65

Which of the following is NOT one of the bases for profitability analysis?

A) Products
B) Customers
C) Territories
D) Management
E) Salespeople

Question 66

Wilton is assessing the lifetime value of his customers. As part of his analysis, he will most likely assess:

A) The potential for new business
B) Current advertising costs
C) Past indirect sales costs
D) Time delay order processing
E) All of the above

Question 67

Jerry wants to measure marketing productivity. He will focus on:

A) Gross revenue minus overhead
B) Sales or profit per unit of marketing effort
C) Marketing costs divided by sales
D) Order processing time versus return on assets managed
E) Direct selling costs

Question 68

Companies are more likely to conduct _______ analysis than profitability analysis.

A) Accounting
B) Sales
C) Headquarters
D) Customer relationship management
E) Production

Question 69

Alex is struggling with his company's new financial accounting system. He knows the key is to understand how _____________ so that true profitability can be determined.

A) Sales are allocated
B) Advertising is measured
C) Costs are allocated
D) Territories are defined
E) Products are produced

Question 70

While sales analysis focuses on the results achieved, cost analysis looks at the costs incurred in producing those results and whether the returns justify the expenditures.

Question 71

If they do profitability analysis, companies are most likely to do it for:

A) Products
B) Customers
C) Territories
D) Salespeople
E) Management

Question 72

A(n) _____________ can be specifically identified with a product or function.

A) Indirect cost
B) Expense
C) General expense
D) Indirect expense
E) Direct cost

Question 73

A(n) _____________ is a shared cost tied to several functions or products.

A) Indirect cost
B) Expense
C) General expense
D) Indirect expense
E) Direct cost

Question 74

The term __________ is often restricted to the materials, labor, power, rent and other items used in making the product.

A) Indirect cost
B) Expense
C) General expense
D) Indirect expense
E) Cost

Question 75

Return on assets managed equals contribution of the asset as a percentage of sales multiplied by the inventory turnover rate.

Question 76

While sales analysis focuses on ___________, cost analysis looks at the costs ________________ in producing those results.

A) Leadership; activated
B) Management expectations; expected
C) Results achieved; incurred
D) Net revenue; anticipated
E) Market share; foregone

Question 77

The essence of marketing cost analysis is to ___________ cost data.

A) Gather
B) Classify
C) Compare
D) Study
E) All of the above

Question 78

Which of the following statements about marketing cost analysis is true?

A) Marketing productivity focuses on the sales or profit output per unit of production input
B) The purpose of marketing cost analysis is to estimate customer relationships by territory, customer, and channel of distribution
C) When given a choice, sales managers prefer to use marketing cost analysis more than sales analysis for managing the sales function
D) Marketing cost analysis focuses on the results achieved to determine if the returns justify the expenditures
E) Any accounting system can be easily adapted to give the information needed for a marketing cost analysis

Question 79

Tyrone is attempting to measure the long-term value or profitability of his customers. Tyrone is measuring:

A) Sales per customer per quarter
B) Current operating profit minus direct costs
C) Gross revenue minus net revenue
D) Lifetime value of the customer
E) Relationship revenue minus overhead costs