Deck 9: Merchandise Buying and Handling

Question 1

Inventory planning based on the weeks' supply method would be most appropriate for a _____,where inventories are planned on a weekly basis and where sales do not fluctuate substantially.

A) supermarket
B) furniture store
C) department store
D) sporting goods store
E) campus bookstore

Answer 1

A

Question 2

Gross margin return on inventory (GMROI)equals:

A) gross margin percentage / dollars invested in inventory at retail.
B) (gross margin / net sales) * (net sales / average inventory at cost).
C) gross margin percentage / inventory turnover rate.
D) net profit margin / markdown percentage.
E) (gross margin / net sales) * (net sales / average inventory at retail).

Answer 2

B

Question 3

When a retailer has a yearly turnover rate that is _____ or more times a year,the percentage variation method is most commonly used for determining planned stock levels.

A) 8
B) 12
C) 4
D) 10
E) 6

Answer 3

E

Question 4

If a buyer lowers planned reductions by $7,000 for the month,this will:

A) reduce planned reductions for the following month by one half that amount; $3,500.
B) reduce BOM inventory by $7,000.
C) lower this month's OTB by $7,000.
D) raise planned purchases by $7,000 for this month.
E) raise this month's OTB by $7,000.

Question 5

The _____ is NOT considered when calculating BOM stock using the basic stock method.

A) number of months in the season
B) total planned sales for the season
C) number of weeks in the retailer's merchandising season
D) estimated turnover rate for the season
E) basic stock level needed

Question 6

The difference between a retailer's planned purchases and the retailer's open-to-buy is:

A) merchandise that the retailer has already ordered, but has not received.
B) the discounts offered by vendors on earlier purchases.
C) reductions to be taken later in the selling period.
D) the difference between the BOM and EOM stock levels.
E) A retailers planned purchases is always equal to the retailer's open-to-buy.

Question 7

All of the following are methods of dollar merchandise planning EXCEPT:

A) stock-to-sales ratio.
B) percentage variation.
C) basic stock.
D) week's supply.
E) valuation turns.

Question 8

If a merchandise line has a gross margin of 35 percent and sales per dollar of inventory investment of 4.0,what is its GMROI?

A) $ 2.60
B) $ 1.40
C) $ 6.15
D) $11.43
E) $14.00

Question 9

The following planned figures have been developed by a buyer for next month: sales = $100,000; reductions = $7,000; EOM stock = $250,000; BOM stock = $300,000; commitments for delivery during next month = $15,000.What are planned purchases and OTB for the buyer?

A) $57,000; $42,000
B) $157,000; $142,000
C) $57,000; $72,000
D) $39,000; $54,000
E) $175,000; $412,000

Question 10

The analysis,planning,acquisition,handling,and control of the merchandise investments of a retail operation is termed:

A) inventory planning.
B) sales review/planning.
C) product ordering.
D) merchandise management.
E) merchandise acquisition.

Question 11

Which of the following is NOT a formal way of deciding inventory levels?

A) Stock-to-sales ratio
B) Gross margin contribution
C) Basic stock
D) Week's supply
E) Percentage variation

Question 12

_____ is the dollar amount that a buyer can currently spend on merchandise without exceeding a planned dollar stock level.

A) "Planning monies"
B) Open-to-buy
C) Inventory shortage funds
D) Unlimited funds
E) EOM shortfall funds

Question 13

Planned purchases at retail are computed as follows:

A) planned sales plus planned reductions plus planned EOM stock minus planned BOM stock.
B) planned sales minus planned reductions plus planned BOM stock plus planned EOM stock.
C) planned sales plus planned reductions minus commitments for future delivery.
D) planned BOM stock plus planned sales plus planned reductions minus EOM stock.
E) planned sales plus planned reductions plus planned EOM stock plus planned BOM stock.

Question 14

The _____ method of merchandise planning requires that,in addition to a base stock level,there will be a variable amount of inventory that will increase or decrease at the beginning of each sales period.

A) base level
B) base BOM contribution
C) basic stock
D) stock-to-sales
E) average stock

Question 15

The following information is known for a buyer of cosmetics:
$\begin{array} { ll } \text {Planned sales for the month }&\$42,000\\ \text {Planned EOM stock }&\$60,000\\ \text {Planned reductions }&\$4,800\\ \text {BOM inventory }&\$72,000\\ \text { Merchandise commitments for delivery}&\$9,600\\\end{array}$

What is the cosmetic department's open-to-buy at retail?

A) $10,000
B) $25,200
C) $32,400
D) $34,800
E) $38,600

Question 16

The following planned figures have been developed by a buyer for next month: sales = $25,000; reductions = $1,500; BOM stock = $80,000; EOM stock = $88,000; commitments already made for delivery during next month = $5,600.What are planned purchases and OTB for the buyer?

A) $18,500; $12,900
B) $34,500; $40,100
C) $18,500; $24,100
D) $34,500; $28,900
E) $26,500; $18,500

Question 17

When retailers believe that it is necessary to have a given level of inventory available at all times,they will likely use the _____ method for inventory management.

A) basic trade
B) basic stock
C) weeks' supply
D) percentage-variation
E) stock-to-sales

Question 18

Determine the buyer's BOM for March,using the percentage variation method,based on the following information: planned sales for March = $200,000; total spring sales = $600,000; spring months = 4; inventory turnover = 2.5.

A) $150,000
B) $240,000
C) $260,000
D) $280,000
E) $600,000

Question 19

The _____ dollar inventory planning technique states that the percentage fluctuations in monthly stock from average stock should be half as great as the percentage fluctuations in monthly sales from average sales.

A) partial stock
B) stock-to-sales
C) basic stock
D) percentage variation
E) weeks' supply

Question 20

A $1,000 increase in planned reductions for the month would:

A) raise EOM inventory by $2,000.
B) lower this month's OTB by $1,000.
C) increase BOM inventory by $1,000.
D) increase this month's OTB by $1,000.
E) lower planned purchases by $1,000 for this month.

Question 21

A(n)_____ occurs when retailers have their own products competing with the manufacturer's products for shelf space and control over display location.

A) category conflict
B) inventory shortage
C) open-to-buy
D) battle of the brands
E) vendor analysis

Question 22

The _____ is a group of products that are closely related because they are intended for the same end use,are sold to the same customer group,or fall within a given price range.

A) merchandise line
B) merchandise product mix
C) brand management
D) product assortment
E) unit management

Question 23

_____ is NOT a common factor considered when selecting a merchandise source.

A) Trade terms
B) Fabric colors used
C) Consumers' perception of the manufacturer's reputation
D) Projected markup on the merchandise
E) After-sale service from the vendor

Question 24

_____ is a record of all purchases a retailer made last year,discounts granted by the vendors,transportation charges paid,the original markup,markdowns,and the season-ending gross margin on a vendor's merchandise.

A) Vendor's financial history
B) Vendor profitability analysis statement
C) Vendor's blue book
D) Vendor report
E) Confidential vendor analysis

Question 25

_____ refers to the management of merchandise categories,or lines,rather than individual products,as a strategic business unit.

A) Category management
B) Breadth management
C) Assortment management
D) Brand management
E) Merchandise management

Question 26

Which of the following is PROBABLY NOT an important criterion to use when selecting a merchandise source?

A) Distribution-center processing time
B) Consumers' perception of the manufacturer's reputation
C) Interest rates charged by your bank to finance this purchase
D) Reliability of delivery from the vendor
E) Where the product is manufactured

Question 27

To alleviate space constraints,some retailers become involved in:

A) buying on consignment.
B) negotiating new building plans.
C) charging manufacturers slotting fees.
D) using extra dating on bills.
E) adding more shelf space.

Question 28

When a retailer makes a single purchase of 25 or more cases of wine,the vendor offers an extra 20 percent discount.This is an example of a:

A) noncumulative-quantity discount.
B) promotional allowance.
C) cash discount.
D) functional discount.
E) cumulative-quantity discount.

Question 29

The effectiveness of the buyer-vendor relationship depends on the:

A) final negotiated prices.
B) negotiation skills of the buyer and the economic power of the firms involved.
C) profitability of the line for the retailer.
D) method of shipment.
E) markdown money.

Question 30

The _____ provides a three-year financial summary as well as the names,titles,and negotiating points of all the vendor's sales staff.

A) black book
B) vendor classification book
C) vendor profitability book
D) buyer's guide
E) confidential vendor analysis

Question 31

_____ is when the vendor allows the retailer extra time before payment is due for goods.

A) FOB destination
B) Extra dating
C) Space reduction
D) FOB factory
E) Space constraints

Question 32

When deciding on which products to stock,buyers encounter all of the following conflicts EXCEPT:

A) maintaining a strong in-stock position on genuinely new items while avoiding the losers.
B) maintaining a high turnover goals at the same time you are maintaining a high margin on all items in the store.
C) maintaining an adequate selection for customers while not confusing them.
D) maintaining space productivity and utilization while not congesting the store.
E) maintaining an adequate stock of the "basic" items while still keeping money aside to capitalize on unforeseen opportunities.

Question 33

When the manufacturer offers a retailer a percentage discount in exchange for performing certain wholesaling and retailing services,the manufacturer is offering a _____ discount.

A) cash rebate
B) Trade
C) performance incentive
D) Quantity
E) Cash

Question 34

_____ refers to the number of different lines the retailer stocks in the store.

A) Variety
B) Assortment
C) Breadth
D) Depth
E) Merchandise mix

Question 35

_____ refers to the number of merchandise brands that are found in a single merchandise line.

A) Choice
B) Variety
C) Assortment
D) Breadth
E) Depth

Question 36

The three dimensions of the optimal merchandise mix are:

A) breadth, depth, and concentration.
B) merchandise lines, breadth, and density.
C) variety, density, and merchandise lines.
D) breadth, consistency, and depth.
E) variety, breadth, and depth.

Question 37

A vendor profitability analysis statement:

A) is a vendor's financial statement that is made available to all retailers.
B) is a schedule maintained by the retailer which shows each vendor's initial data for new lines, shipment of orders, and gross margins.
C) is a retailer's financial statement used by the vendor for determining available credit limits.
D) is a retailer's analysis of the profitability of the different vendors and their lines from the prior year(s).
E) breaks down vendors using an A-B-C classification based on the reliability of delivery from each vendor.

Question 38

Assume that the list price of an item is $1,200 and that the chain of discounts is 40-20-10.How much would a retail buyer pay?

A) $480.00
B) $518.40
C) $576.00
D) $720.00
E) $840.60

Question 39

Which of the following factors is NOT a constraint on the retailer's optimal merchandise mix?

A) The space available in a store
B) The buyer's experience with the current product line
C) The merchandise turnover rate
D) The way the target market behaves
E) The dollar investment available

Question 40

Which of the following is NOT a common buying error that may cause adjustments to be made to the retailer's OTB?

A) Buying the wrong type of merchandise
B) Buying merchandise at the wrong price levels
C) Having too much or too little basic stock on hand
D) Buying from very few vendors
E) Failing to identify the season's hot items early enough in the season

Question 41

Gross margin return on inventory (GMROI)is based on both the retailer's inventory turnover and its profit margin.

Question 42

The percentage variation method (PVM)of inventory planning assumes that the percentage fluctuations in monthly stock from average stock should be half as great as the percentage fluctuations in monthly sales from average sales.

Question 43

Employee theft,which amounts to _____ per apprehension,is most prevalent in foods stores,department stores,and discount stores.

A) less than $50
B) approximately $100
C) approximately $200
D) approximately $500
E) more than $800

Question 44

_____ occurs when customers or individuals disguised as customers steal merchandise from the retailer's store.

A) Vendor collusion
B) Vendor theft
C) Shorting
D) Employee theft
E) Customer theft

Question 45

A buyer is given cash discount terms of 3/10,net 30,MOM.The invoice for the goods is dated May 14.When will the discount period expire?

A) May 25
B) May 22
C) June 10
D) June 15
E) June 30

Question 46

Service retailers can stockpile inventories in anticipation of future demand.

Question 47

Generally,the weeks' supply method (WSM)of inventory planning works best when used by retailers who have stable sales from week to week.

Question 48

If delivery terms are FOB factory,who would be responsible for the transportation charges?

A) The transportation company
B) The vendor
C) The buyer
D) The buyer and the vendor share the expenses
E) The final customer

Question 49

A _____ discount is one that a vendor provides a retailer for running a special promotion for a manufacturer.

A) promotional
B) advertising rebate
C) psychological
D) special
E) cash

Question 50

When comparing customer theft and employee theft,which of the following statements is false?

A) Over a dozen shoppers are caught for every time an employee is caught.
B) As many as 30 percent of American workers admit to stealing from their employers, even if it is only a small item.
C) Employee theft amounts to over $800 per apprehension.
D) The average amount of merchandise recovered from a shoplifter is over $500.
E) Employee theft is most prevalent in food stores, department stores, and discount stores.

Question 51

The basic stock method (BSM)of inventory planning is most useful when a retailer has a low turnover rate or when sales are erratic.

Question 52

_____ occurs when an employee of one of the retailer's vendors steals merchandise as it is delivered to the retailer.

A) Vendor collusion
B) Vendor theft
C) Shorting
D) Employee theft
E) Employee shortage

Question 53

Ten days before Halloween,your local candy wholesaler puts all of its Halloween candy on sale.This is an example of which type of discount?

A) Seasonal discount
B) Quantity discount
C) Zone pricing
D) Promotional allowance
E) Smart discount, since Valentine's Day is approaching and the wholesaler does not want to be stuck with the merchandise

Question 54

Inventory is the largest investment a retailer makes.

Question 55

_____ allows the retailer to pay the invoice in advance of the end of the cash period and earn an extra discount.

A) Advance discount
B) Functional discount
C) Momentum discount
D) Promotional allowance
E) Anticipation

Question 56

A cash discount is quoted to a retailer as 3/10,net 60.This means that:

A) a discount of 3 percent can be earned if paid off in 10 installments over the next 60 days.
B) the retailer will get a 10 percent discount if the total is paid in 60 days.
C) a 3 percent discount will be granted to the retailer if the bill is paid in 10 days.
D) the bill is due in 60 days, but a discount of 3 percent to 10 percent can be earned for paying it off sooner.
E) the total bill must be paid within 10 days.

Question 57

A _____ is based on the total amount purchased during a single purchasing event.

A) single purchase discount
B) cumulative discount
C) noncumulative discount
D) one-time discount
E) functional discount

Question 58

It is important for anyone considering a career in retailing to understand merchandise management,since all retailing jobs have some contact with the firm's merchandising activities.

Question 59

When a manufacturer quotes the same price for the same merchandise to buyers in Cleveland,Ohio; Los Angeles,California; and Orlando,Florida the manufacturer is probably quoting the retailers a _____ price.

A) zone
B) basing point
C) FOB destination
D) FOB equal
E) FOB shipping point

Question 60

A vendor offers a retailer "FOB shipping point" terms.This means that the retailer must pay:

A) no transportation costs.
B) transportation costs from the shipping point.
C) all transportation costs from the vendor's factory.
D) half of the transportation costs.
E) only for those transportation costs incurred after the goods leave the retailer's factory.

Question 61

Failure to let the vendor assist the buyer by adding new items or new colors to the mix is a common buying error.

Question 62

A sell through is the percentage of the stock of a particular item from a particular vendor that sold during the merchandise season.

Question 63

For most retailers,the limited amount of space in their store is a constraining factor on their optimal merchandise mix.

Question 64

The three dimensions of the optimal merchandise mix include: variety,breadth,and depth.

Question 65

The annual cost to retailers for carrying inventory is between 15 to 20 percent.

Question 66

There is no way for retailers to increase their OTB once they have met their limit.

Question 67

The optimal merchandise mix will be the same for every store.

Question 68

Supermarkets usually seek to highlight breadth in their inventories.

Question 69

If planned reductions for June increase by $1,000,June OTB will increase by $1,000.

Question 70

A common error made by retail buyers is having too much or too little basic stock on hand.

Question 71

While many different vendor selection criteria are discussed in the text,a product's country of origin continues to lose importance as customers now think in terms of a global,rather than national,scale.

Question 72

An advantage of using a private label is that some manufacturers will not sell a product to certain retailers.

Question 73

Dollar merchandise control over inventory purchases is frequently accomplished through a technique called open to buy.

Question 74

A retailer selling a seasonal item would want to be 75 percent sold out at the planned out-of-stock date.

Question 75

Failure to identify a season's hot item(s)early enough is a common buying error.

Question 76

If the retailer has no purchase commitments for future delivery,then its OTB and planned purchases at retail should be equal.

Question 77

A retailer's primary consideration in choosing a vendor or merchandise source should be the projected markup of the product(s)in question.

Question 78

Depth is the average number of SKUs within each brand of the merchandise line.

Question 79

"Breadth" refers to the number of different merchandise lines a retailer stocks in its store.

Question 80

A common error made by retail buyers is not buying too many trendy fashions.