Question 1

Safety stock reduces stockouts since it anticipates variability in usage rates and lead times.

Accepted Answer

Safety stock is a buffer stock kept in inventory to protect against unexpected demand fluctuations or delays in delivery times. By anticipating and accounting for variability in usage rates and lead times, safety stock can help prevent stockouts and ensure that customers receive their orders on time. Therefore, the statement is true.

Question 2

An appliance firm's adjusted retail book value is $570,000 and its cost complement is 0.75.Its closing inventory at cost is $427,500.

Accepted Answer

The closing inventory at cost is calculated by multiplying the adjusted retail book value by the cost complement: $570,000 * 0.75 = $427,500.

Question 3

GMROI combines two measures: gross profit and return on investment.

Accepted Answer

The answer of GMROI combines two measures: gross profit and...

Question 4

The average monthly sales for a retailer always result in a monthly sales index of 100.

Accepted Answer

The monthly sales index is calculated based on a comparison to a benchmark, which is usually the average sales for a certain period. If the average monthly sales for a retailer are used as the benchmark, then the monthly sales index will always be 100.

Question 5

A firm's planned purchases for a given month are $30,000 and its purchase commitments are $7,000.If its merchandise costs as a percent of selling price are .75;its open-to-buy at cost is $17,250.

Accepted Answer

To calculate the open-to-buy at cost, we need to subtract the purchase commitments from the planned purchases:
$30,000 - $7,000 = $23,000 (Total available for purchases)
Next, we need to divide this by the merchandise cost percentage (0.75) to get the total selling price available for purchases:
$23,000 / 0.75 = $30,667
Finally, we need to subtract the total selling price from the planned purchases:
$30,667 - $30,000 = $667
This is the amount of excess inventory the firm can afford to purchase, which equals $667 / 0.75 = $889.33 at cost. 
Therefore, the open-to-buy at cost is ($17,250 + $889.33) = $18,139.33, which is less than the total available for purchases ($23,000). Hence, the statement is true.

Question 6

The economic order quantity formula balances gross profitability,expected sales,and probability of stockouts.

Accepted Answer

The economic order quantity (EOQ) formula is designed to minimize the total costs of ordering and holding inventory, not to balance profitability, expected sales, or probability of stockouts.

Question 7

Annual demand for color ink jet printers for a computer retailer is 500 units;order placement costs are $35;each printer averages $200 at cost;and annual carrying costs per unit are $50.The economic order quantity is 27 units.

Accepted Answer

The answer of Annual demand for color ink jet printers...

Question 8

A high stock turnover rate is generally associated with merchandise cost savings due to quantity discounts.

Accepted Answer

A high stock turnover rate indicates that inventory is sold and replaced quickly, but it does not necessarily imply merchandise cost savings due to quantity discounts.

Question 9

The basic stock method plans inventory requirements on the basis of the weeks' supply method.

Accepted Answer

The basic stock method calculates inventory requirements based on a fixed base stock level plus a variable amount, not on the weeks' supply method.

Question 10

A retailer's average monthly sales are $120,000.If its monthly sales index for January is 72,January's sales are $166,667.

Accepted Answer

To find January's sales, we need to use the monthly sales index and the average monthly sales.

January's sales = Average monthly sales x Monthly sales index/100

Substituting the given values:

January's sales = $120,000 x 72/100 = $86,400

Therefore, the statement given in option A is false. January's sales are not $166,667.

Question 11

A retailer has a beginning inventory (at cost)of $62,000,purchases (at cost)of $17,000,and transportation charges of $1,600.Its merchandise available for sale is $79,000.

Accepted Answer

The merchandise available for sale is calculated by adding the beginning inventory, purchases, and transportation charges: $62,000 + $17,000 + $1,600 = $80,600, not $79,000.

Question 12

A store plans average monthly stock of $80,000.September's sales are estimated at 20 percent more than average.The store's planned inventory for September should be $96,000.

Accepted Answer

The planned inventory should be based on the average monthly stock, not the sales estimate. The sales estimate does not directly affect the planned inventory level.

Question 13

A retailer's cost of goods sold during the year equals $750,000 and its average inventory on hand (at cost)equals $375,000.Its annual rate of stock turnover equals 2.

Accepted Answer

The formula for stock turnover is:

Stock turnover = Cost of goods sold / Average inventory on hand

In this case, we are given:

Cost of goods sold = $750,000
Average inventory on hand (at cost) = $375,000

Substituting into the formula, we get:

Stock turnover = $750,000 / $375,000 = 2

Therefore, the annual rate of stock turnover for this retailer is 2, and the answer is A.

Question 14

A dinnerware retailer plans retail operating expenses to be 38 percent of sales,a net profit margin of 5 percent of sales,and retail reductions to be 10 percent of sales.Its required initial markup needs to equal 48 percent.

Accepted Answer

The initial markup percentage is calculated to cover operating expenses, desired profit, and retail reductions. Adding these percentages (38% + 5% + 10%) equals 53%, which is higher than the required initial markup of 48%. Therefore, the statement is true as the required initial markup should at least be 48% to cover these costs.

Question 15

Open-to-buy is the difference between planned purchases and purchase commitments made by a buyer during the month.

Accepted Answer

Open-to-buy is the planned amount available for a buyer to purchase inventory. It is the difference between planned purchases and purchase commitments made during a particular period, usually a month.

Question 16

A retailer's average monthly sales are $50,000.If January's monthly sales are $60,000,January's sales index is 110.

Accepted Answer

The answer of A retailer's average monthly sales are $50,000.If...

Question 17

A retailer has a usage rate of 12 units per day,a lead time of 5 days,and a safety stock level of 4 units for a popular floor lamp.Its reorder point equals 55 units.

Accepted Answer

The reorder point is calculated as (usage rate * lead time) + safety stock, which equals (12 * 5) + 4 = 64 units, not 55 units.

Question 18

A retailer's total merchandise available for sale (at cost)is $175,000.The total in merchandise available for sale at retail equals $255,000.The retailer's cost complement is 1.46.

Accepted Answer

The cost complement is calculated as the cost of goods available for sale divided by the retail value of goods available for sale. Here, it would be $175,000 / $255,000 = 0.686, not 1.46.

Question 19

A jeweler plans June sales to be $67,000 and planned reductions to be 15 percent of sales.If planned July 1 inventory is $225,000 (at retail)and the June 1 inventory (at retail)is $260,000,planned purchases (at retail)are $32,000.

Accepted Answer

The question does not provide enough information to determine whether the answer is true or false. It only provides information about sales, reductions, and inventory, but not enough information to calculate planned purchases.

Question 20

A book department has $400,000 in yearly operating expenses and planned yearly sales of $4,800,000.If reductions of $55,000 are anticipated and a profit goal of $500,000 is planned,its required initial markup should be 19.7 percent.

Accepted Answer

The required initial markup can be calculated using the formula:
Required initial markup = (Total expenses - Profit goal - Anticipated reductions) / Planned sales
Plugging in the given values, we get:
Required initial markup = ($400,000 - $500,000 - $55,000) / $4,800,000
Required initial markup = $-155,000 / $4,800,000
Required initial markup = -0.0323 or -3.23%
This means that the department would need a markup of at least 3.23% just to cover its expenses and profit goal. However, the statement in the question is that a markup of 19.7% is required, which is greater than 3.23%. Therefore, the statement in the question is true.

Quiz 16: Financial Merchandise Management