2018 State Entrepreneurship Cluster

An owner of a small business who needs to obtain funds to produce goods might borrow against the cash value of A. a life insurance policy. B. a real estate mortgage. C. installment loans. D. accounts payable.

A A life insurance policy. Owners of small businesses often have life insurance policies which are assets that pay a specified amount of money to beneficiaries in the event of the owner's death. Many of these policies have a cash value, or monetary worth, against which the owner may borrow funds. Borrowing against the cash value of a life insurance policy is one way of obtaining cash in order to produce and sell goods. Accounts payable, mortgages, and installment loans are business liabilities rather than assets.

Managers should understand the factors in a business's external environment because these factors A. affect the direction a business takes. B. affect all businesses in the same ways. C. exist in an unchanging environment. D. are the result of government regulation.

A Affect the direction a business takes. Business exists in a constantly changing environment composed of factors specific to the individual business as well as factors common to all businesses. Business decisions must be made based around these environmental factors so that the business can be proactive rather than reactive to changes in the environment. Government regulation is only one external factor.

Before Lynnette takes her new product to a mass audience, she should write a business plan to A. assess a new product or promotion. B. identify managers' roles. C. obtain a specific contract or agreement. D. place a value on the business.

A Assess a new product or promotion. When a company has introduced a new good, service, or product promotion, it usually wants to know how the product or promotion has fared. Writing a business plan forces the company to analyze the effectiveness of each. Start-up businesses with unclear managerial roles can use the process of writing a business plan to establish who is expected to do what. To snag a valuable client account, companies can write a business plan that describes how successful they intend to be. If business owners want to sell the company, they can use the process of writing a business plan to help them set a value.

Which of the following business activities is most likely to impact an organization's governance structures: A. Borrowing money from a bank B. Hiring a new sales representative C. Developing a marketing strategy D. Raising prices on consumer goods

A Borrowing money from a bank. Banks often require an organization with a loan to follow external control mechanisms which impact its governance structures. Hiring employees, developing a marketing strategy, and raising prices are all common business activities that are not likely to impact an organization's governance structures.

Every month, a technology company has all-staff meetings in which employees team up and brainstorm new ideas together. Many of these ideas lead to innovative new products. This is an example of how __________ helps organizations to innovate and change. A. collaboration B. training C. customer service D. resilience

A Collaboration. One of the ways that an organization can encourage change is through collaboration. Collaboration between multiple departments allows for more creativity, which in turn leads to more innovation and change. This example is not related to training, customer service, or resilience.

What is one of the risks associated with a business obtaining a fixed interest rate on a long-term loan? A. Interest rates decrease B. Processing fees increase C. Interest rates increase D. Processing fees decrease

A Interest rates decrease. Many businesses obtain fixed interest rates on loans because that guarantees the rate for the life of the loan. If the interest rates increase over time, the business still pays the rate it negotiated at the start of the loan. However, the risk is that the interest rates will decrease and the business will still be paying the higher rate. When negotiating fixed rates, businesses are speculating whether the interest rates will increase or decrease. Processing fees are bank charges for preparing loan documents and reviewing a business's financial records and credit reports. These fees can be negotiated and are paid to establish a loan.

One of the most important, fundamental keys to successful change management is A. involving everyone in the organization. B. focusing on processes over people. C. minimizing use of resources. D. ensuring changes do not impact competitiveness.

A Involving everyone in the organization. Change management impacts entire organizations. Therefore, everyone needs to be involved in the process. Focusing on processes over people, using as few resources as possible, and ensuring changes do not impact competitiveness are not keys to successful change management.

The basic ways of dealing with business risk are to A. prevent or control, transfer, retain, or avoid the risk. B. accept or reject, transfer, decrease, or carry the risk. C. reduce or eliminate, estimate, identify, or reveal the risk. D. eliminate or avoid, transfer, estimate, or plan for the risk.

A Prevent or control, transfer, retain, or avoid the risk. Usually, business risk cannot be totally eliminated or avoided. Businesses can choose to take measures that will prevent or control risks that can be anticipated. They can transfer the risk to others by entering into contracts, purchasing insurance, or choosing a form of business ownership that spreads the risk. Or, they may retain, or keep, the risk because it is small, the business is unaware of it, or the business has underestimated the risk.

Government regulation is a factor that affects a business's pricing because pricing regulations prohibit A. price fixing. B. price advertising. C. unit pricing. D. minimum prices.

A Price fixing. Price fixing is an illegal agreement between businesses as to a price or price range for products. Even though the businesses might choose a fair price, the practice is forbidden because it limits competition. There are various laws that govern the use of price advertising, minimum prices, and unit pricing, but the laws do not prohibit them.

Which of the following is a marketing activity that businesses consider when conducting a competitive analysis: A. Promotion B. Risk management C. Purchasing D. Management research

A Promotion. Promotion is a marketing activity that refers to the various types of communications that marketers use to inform, persuade, or remind customers of their products. When businesses conduct a competitive analysis, they consider their competitors' promotional activities because promotional activities have an impact on a business's success in attracting customers and selling products. As a result of analyzing competitors' promotional activities, a business might decide to use similar activities because they have proven to be effective. Risk management and purchasing are business activities rather than marketing activities. Management research is not a marketing activity.

Heyman's discount store planned to participate in a variety of promotional activities in order to meet its goal of increasing the store's market share. Heyman's promotional plan is a marketing A. strategy. B. tactic. C. concept. D. objective.

A Strategy. Marketing strategies are plans of action for achieving marketing goals and objectives. In order to meet its goal of increasing market share, Heyman's planned the marketing strategy of participating in a variety of promotional activities. Tactics are specific actions that will be used to carry out strategies. A concept is an idea or a philosophy. Objectives are goals.

Why is it important for businesses to identify potential security issues? A. To develop procedures to protect the workplace B. To take steps to avoid all risk C. To provide employees with safety information D. To investigate causes of illness

A To develop procedures to protect the workplace. Businesses want to protect the workplace, which includes protecting their assets as well as their employees and customers. Therefore, businesses need to identify potential security issues to develop procedures to protect the workplace. For example, a business might find that lighting inside and outside of the facility should be increased to reduce the threat of robbery, which could lead to a financial loss for the business or physical harm to employees and customers. It is not possible to avoid all risk. Businesses do not identify potential security issues to provide employees with safety information or to investigate causes of illness.

To determine if a product idea is practical to produce, a business should A. assess the marketing plan. B. conduct further research. C. hire an outside consultant. D. establish a production committee.

B Conduct further research. After generating several product ideas, a business determines the feasibility of each idea. The business should consider many factors when determining if the idea is worth pursuing, such as resources (e.g., human, financial, raw materials) and market demand, which often requires research. Because determining the initial feasibility of an idea occurs in the early stages of product development, a business usually would not assess the marketing plan, hire an outside consultant, or establish a production committee.

In which of the following situations might a business lose money from bad debts by failing to monitor information in its budget and making necessary adjustments: A. Total cash receipts are higher than usual. B. Large amount of accounts receivable are past due. C. Many customers are paying with personal checks. D. Credit card sales are growing in number.

B Large amount of accounts receivable are past due. A business's budget lists projected sales figures as well as actual numbers. A business monitors this information in order to identify problem areas and make necessary adjustments. If the budget figures indicate that a large amount of accounts receivable are past due, the business knows that it has a collection problem and must take steps to obtain payment. A business that fails to monitor this type of information may lose money from bad debts because it is difficult to collect old accounts. Businesses that accept credit cards and personal checks receive cash quickly and do not lose money from bad debts. If cash receipts are high, the business is not losing money.

To understand whether producing additional units of a product would be a good idea, businesses need to determine A. total revenue. B. marginal revenue. C. total output. D. net profit.

B Marginal revenue. Marginal revenue is the additional revenue that is added by production of an additional unit of the product. The formula for determining marginal revenue is Change in Total Revenue/Change in Sales. Therefore, to calculate marginal revenue, businesses would first need to determine total revenue. Looking at a demand curve, businesses find that as a product's price increases, the quantity demanded decreases. Net profit is the figure obtained by subtracting operating expenses from gross profit.

A business should decide at the beginning of a marketing research project how much it can afford to spend in order to A. tell the researcher when to stop the project. B. narrow the focus of the research if necessary. C. cut the project in half if that is all it can afford. D. skip some of the research steps if it needs to save time.

B Narrow the focus of the research if necessary. Many businesses allocate a specific amount in the budget for marketing research. If the amount will not cover the expense of the entire research project, then the business should stop at this point or narrow the focus of the project to the part that would be most useful at that time. The steps in the marketing research process must be taken in a specific order, and none of them can be skipped. Starting a project and then telling the researcher to stop or cutting the project in half would not be effective.

What type of competition is being used when businesses compete on a basis other than price? A. Direct B. Nonprice C. Price D. Indirect

B Nonprice. Businesses can compete on a variety of factors other than price. Some of these are offering higher quality products, providing new product features, offering larger product assortments, providing more customer services, using a well-trained sales staff, and providing more attractive decor and/or location. Direct competition is the rivalry for scarce customer dollars that occurs between or among businesses that sell similar goods or services. Indirect competition is the rivalry for scarce customer dollars that occurs between or among businesses that sell dissimilar goods or services.

During a board of directors meeting, the company's CEO said, "Based on last year's sales data and changes in economic conditions, I believe that sales will increase next year." In this situation, the CEO has provided the board members with a(n) A. fact. B. prediction. C. estimate. D. recommendation.

B Prediction. A prediction is a forecast that people make about the future. Predictions are not always supported by data. In the example, the CEO did not provide numerical sales data or specific economic indicators to support his/her statement. An estimate is an educated guess that may consider data that are not verified. Facts are verified data. A recommendation is a suggestion to take a certain course of action.

Rechargeable batteries are an example of what type of innovation? A. Paradigm B. Product C. Convertible D. Categorical

B Product. Product innovation takes place when a company creates a new product or redesigns an existing product. Paradigm innovation takes place when the entire perception of a product, company, or industry changes. Convertible and categorical are not types of innovation.

During-the-sale touch points should be designed to A. show the customer what benefits the brand offers. B. reinforce that the customer is making the right buying decision. C. resolve any problems the customer has with the product. D. get the customer's attention.

B Reinforce that the customer is making the right buying decision. During-the-sale touch points should be designed to reinforce that the customer is making the right buying decision. By this point, pre-sale touch points should have gotten the customer's attention and shown the benefits the brand offers. Resolving problems with the product is typically something that occurs after the sale.

Which of the following financial ratios should business owners use to determine how well their investment has performed: A. Return on owner's equity B. Return on investment C. Current ratio D. Return on sales

B Return on investment. The return on investment ratio shows the rate of return on the total money invested by owners and others in the firm. Return on owner's equity shows whether the owners are making a fair return on their investment. Return on sales shows how profitable a firm was for a specific period of time. The current ratio shows whether the firm can comfortably meet its current debts.

A business manager who plans to obtain a specific share of the market is developing which of the following: A. A corporate strategy B. An operating structure C. A company objective D. An organizational chain

C A company objective. Objectives are goals to be reached. Business managers develop specific objectives that are targets for the company to meet. Obtaining a certain share of the market is a specific objective. Once objectives have been developed, managers prepare plans that will help the business achieve these goals. Strategies are plans of action for achieving goals and objectives. Operating structure is the way the different areas of a business are arranged. The organizational chain is the line of authority.

Enterprise risk management has developed in recent years because of A. reduced government regulation. B. the elimination of certain insurance plans. C. an increasingly diverse array of risks. D. declining quality standards.

C An increasingly diverse array of risks. In the past, risks were managed through the purchase of insurance. However, companies have begun to manage many different types of risks that need to be managed on a broader level. Enterprise risk management is now a plan-based strategy that is incorporated throughout an organization. Enterprise risk management has not developed due to the elimination of certain insurance plans, reduced government regulation, or declining quality standards.

Which of the following is a primary factor that affects a new venture's human resource needs: A. Insurance risk B. Political structure C. Business type D. Personal flexibility

C Business type. Human resources are the people a business uses to produce goods and services. A business's human resource needs vary because different businesses require different skills and knowledge. For example, a restaurant needs people to cook and serve food, while an airline needs pilots and ticket takers. Political structure, insurance risk, and personal flexibility are not primary factors that always affect a start-up business's human resource needs.

Which of the following is an action that a business might take after comparing its operating results to the industry average: A. Improve relations with its advertising agency B. Increase participation in community activities C. Decrease collection time on accounts receivable D. Decrease training and orientation for new employees

C Decrease collection time on accounts receivable. Businesses usually compare their operating results to the industry average in order to determine how well they are performing. If a business learns that other similar businesses are being paid much sooner than it is, the business might take steps to decrease collection time on accounts receivable. By speeding up payment on accounts receivable, the business will improve its cash flow situation and often become more profitable. The advantage of comparing operating results to the industry average is that a business can identify problem areas and take action to correct them. After comparing its operating results to the industry average, a business would not improve relations with its advertising agency, decrease training and orientation for new employees, or increase participation in community activities.

A local business raises money to help people in the community who were affected by a tornado. This is an example of which of the following positive actions that businesses should take: A. Providing excellent customer service B. Providing proper training for employees C. Demonstrating corporate responsibility D. Protecting the business's reputation

C Demonstrating corporate responsibility. Companies, large and small, have an impact on the communities around them, and they should take action to make sure that impact is positive rather than negative. Companies can demonstrate corporate responsibility by showing concern for their communities, and raising money for people who were affected by a tornado is one way of doing this. Providing proper training for employees, providing excellent customer service, and protecting the business's reputation are all positive actions businesses should take, but they are not illustrated in this example.

Which of the following is an external control used to govern companies: A. Segregation of duties B. Whistleblower policy C. Health and safety laws D. Managerial oversight

C Health and safety laws. External controls are those that govern an organization from the outside. They are usually set by governments. Health and safety laws are external because they are set by the government, not an organization itself. Whistleblower policies, segregation of duties, and managerial oversight are internal means of control.

5. When is it best for a business to use an exclusive distribution pattern? A. It chooses to eliminate intermediaries. B. It prefers to have its intermediaries promote the product. C. It needs to maintain tight control over a product. D. It wants the product to be available in all possible locations.

C It needs to maintain tight control over a product. Exclusive distribution involves selling a product through one intermediary or middlemen, in a geographic area. Exclusive distribution is often preferred for specialty, highly complex, and technical products, or products that require special handling or training, such as airplanes or large machinery. When a business wants to deal with intermediaries that will do the best job to promote and sell their products, it would use selective distribution. Selective distribution means selling a product through a limited number of wholesalers and retailers in a geographic location. A business that wants to bypass middlemen (intermediaries) would choose a direct-distribution strategy. Intensive distribution involves selling a product (e.g., candy bars) through every available wholesaler and retailer in a geographic area where consumers might look for the product.

To be effective, businesses should set marketing objectives that can be A. estimated. B. written. C. measured. D. promoted.

C Measured. Marketing objectives are the goals a business seeks to reach with its marketing plan. To be effective, these objectives should be able to be measured so the business can determine if the marketing plan is successful. An example of a measurable marketing objective is planning to increase sales by 5% over the next 12 months. The business will be able to determine if that objective was met. To be effective, businesses do not need to set marketing objectives that can be written, estimated, or promoted.

When negotiating maintenance contracts, which of the following should businesses consider that often adds to the overall cost: A. Training sessions B. Installment requirements C. Optional features D. Additional supplies

C Optional features. Many maintenance contracts are available with a variety of optional features that usually add to the overall cost of the contract. For example, a basic contract might include a certain number of repairs per month. If the business wants unlimited repairs or wants the maintenance company to make a house call, it often adds to the cost. These are examples of optional features that a business might decide to add to the basic contract. However, businesses should analyze the extra cost involved to decide if the options are worth the price. Maintenance companies usually do not install equipment, provide training, or sell supplies because their function is to maintain and repair equipment and facilities.

Which of the following is a factor that tends to reduce employee productivity and has a negative effect on the success of a new business: A. Clear quality standards B. Narrow product line C. Poor communication D. Short-term goals

C Poor communication. Productivity is the amount of work that employees (human resources) perform in a given period, such as their output per hour. If management does not clearly communicate the business's goals, processes, needs, and expectations to employees, they will not know how to perform their jobs, which can reduce their productivity. Lower productivity often results in lower customer satisfaction, which negatively affects the business. A narrow product line, clearly expressed quality standards, and short- term goals do not have a negative effect on the business.

A small brick and mortar bookstore will benefit most from a supply chain that is designed to A. ship books to customers' homes. B. stock large quantities of best sellers. C. purchase books to fulfill requested orders. D. use an electronic commerce center to handle orders.

C Purchase books to fulfill requested orders. A small brick and mortar bookstore is more likely to benefit from purchasing books to fulfill requested orders from customers. A small store will not benefit from storing large quantities of books due to limited space and the high cost of carrying extra inventory. Since a brick and mortar store depends on customer visits to promote books, gifts, and other items, it is not likely to benefit from using an electronic commerce center or shipping books to customers' homes.

Which of the following is an important purchasing activity in a business: A. Developing financial statements B. Setting prices C. Selecting vendors D. Managing employee benefits

C Selecting vendors. Purchasing is the planning and procedures necessary to obtain goods and services for use in the business or for resale. An important purchasing activity is selecting vendors (suppliers) that have the products the business needs to use in its day-to-day operations, to make items to sell to customers, or to resell to customers. Pricing is a marketing function. Developing financial statements is an accounting activity. Managing employee benefits is a human resources management activity.

Why do businesses often maintain several different personnel files for each employee? A. To organize general information B. To make record keeping easier C. To protect employees' privacy D. To be prepared for an emergency

C To protect employees' privacy. Businesses are required to maintain certain information about employees, and a lot of this information is personal or sensitive in nature. To protect employees' privacy, businesses often maintain several different personnel files for each employee. Certain categories of information are kept in each file, and these files may be accessed only by authorized staff. For example, a current file might contain information that the business needs on a regular basis such as emergency contact, address, and phone number. Another file might contain confidential information such as references and performance evaluations, while another file might contain information about medical claims and benefits. Then, only the current file is available unless an authorized staff person needs to review another file for a specific reason, such as to consider the employee for a promotion. Businesses do not maintain several different personnel files for each employee to make record keeping easier, to organize general information, or to be prepared for an emergency.

A risk management program helps to __________ risk, which makes it easier to organize and handle them. A. process B. encourage C. prevent D. categorize

D Categorize. A risk management plan helps to separate risks into categories, which helps them to be properly organized and easier to manage. Risk management programs do not necessarily encourage, prevent, or process risk.

Orson, the sole proprietor of a home-based consulting business, wants to purchase and run a restaurant franchise. So he can focus on his new venture, what is Orson likely to do about his consulting business? A. Serve on the business's board of directors. B. Sell the business for a licensing fee. C. Form an "S" corporation. D. Close the business.

D Close the business. Developing a harvesting or exiting strategy for a venture is an important step in the entrepreneurial process. The entrepreneur must decide how much, if at all, s/he wants to be involved in the business upon leaving the day-to-day operations. One option is to close the business, which is most likely the option Orson would select. A home-based sole proprietor does not have partners or employees to think about or overhead and office expenses, making closing his business a viable option. Since Orson wants to focus on his next venture, he is unlikely to structure the consulting business as a corporation, which is time consuming, expensive, and requires a board of directors. A home-based consulting business that is established as sole proprietorship is not sold for licensing fees.

Taylor is a managerial accountant, and she is attempting to determine why the costs of production are on the rise. Taylor needs to identify A. buying motivations. B. direct labor hours. C. sales revenue. D. cost drivers.

D Cost drivers. Cost drivers are triggers that change the cost of an activity. Accountants such as Taylor use cost drivers to determine and assign overhead costs. Knowing what causes production costs to rise can help accountants figure out how to reduce them. Direct labor hours are an example of cost drivers. Identifying sales revenue or buying motivations will not necessarily help Taylor determine why the costs of production are on the rise.

Which of the following services that businesses provide customers often increases a business's sales: A. Mystery shopping B. Credit-card terminal C. Operating procedures D. Gift registry

D Gift registry. A service that some businesses provide is a gift registry. Gift registries provide customers with the ability to indicate the products they want for special occasions such as weddings. The business keeps track of the items as they are purchased so the person who is registered does not receive duplicate gifts. By offering a gift registry, businesses often increase sales because customers visit the business to buy gifts for the person who is registered there. In addition, customers may make other purchases while in the process of buying the gifts. Procedures are the step-by-step process employees follow to perform a specific task. A credit-card terminal is used by the business to process credit-card sales. Mystery shopping involves people posing as customers to evaluate the business and its salespeople.

Which of the following is an advantage of a supply chain's ability to adjust internal inventory levels: A. It develops better supplier relationships. B. It no longer needs to monitor inventory levels. C. It significantly reduces transportation costs. D. It can respond to changes in the marketplace.

D It can respond to changes in the marketplace. A supply chain can help a business quickly adjust inventory levels to respond to market changes. A supply chain does not eliminate the need to monitor inventory levels. The supply chain benefits of reduced transportation costs and better supplier relationships are not realized from adjusting internal inventory levels.

Which of the following should you do when selling your business: A. Say yes to the first offer that you receive. B. Begin preparing a few weeks before you plan to sell. C. Sell the company when business is on the downturn. D. Keep your business negotiations confidential.

D Keep your business negotiations confidential. It's important to keep the sales process under wraps. If word gets out, you could risk damaging relationships with clients or employees. You should start your preparations far ahead of time, perhaps even two to four years early. You should sell the company when it is doing well, not when it's doing poorly. You should not necessarily take the first offer that you receive; instead, you should consider every opportunity and take the one that's right for your business.

What factor directly affects a business's selling prices? A. Disposable income B. Product substitution C. Social trends D. Operating expenses

D Operating expenses. Operating expenses are the costs of running a business, which include fixed expenses (costs that do not change with sales volume) and variable expenses (costs that change in direct relation to sales volume). A business's selling prices are also affected by the costs of the product and the amount of profit the business wants to obtain. Disposable income is the amount of income people have left to spend, or dispose of, after they have paid their taxes. Social trends are the directions of changes in people's lifestyles. Product substitution is suggesting merchandise other than the original request when the business does not have the item requested or when the salesperson recognizes the customer's true need. None of the distractors has a direct effect on selling price.

What is a common communications channel used in public relations? A. Billboards B. Trade shows C. Product displays D. Press releases

D Press releases. Press releases are written information provided to the media in order to obtain publicity. They are a common communications channel, or method or providing information to others, used in public relations. Businesses often send press releases to the media to announce good news, such as plans for expansion, that will generate positive publicity for the business. Trade shows, product displays, and billboards are not common communications channels used in public relations.

7. Which of the following is a criterion that some businesses might use to evaluate channel members: A. Marketing plan B. Shipping method C. Management style D. Return policy

D Return policy. Businesses usually evaluate channel members on a regular basis to make sure that they are performing as expected. In order to evaluate performance, businesses develop criteria such as return policies. This criterion is important to businesses that want to be able to return products for agreed-upon reasons. If businesses find that channel members are not meeting these standards, they often work with the channel members to improve performance. If channel members continue to perform in an unacceptable manner, they may be terminated. Businesses usually are not concerned with shipping method, management style, or marketing plan as long as the channel members meet certain criteria and perform effectively.

Sweepstakes and contests are examples of communications channels often used in A. media commercials. B. advertising campaigns. C. publicity programs. D. sales promotions.

D Sales promotions. Sales promotion involves promotional activities other than advertising, personal selling, and publicity that stimulate customer purchases. Sweepstakes and contests are examples of communications channels, the means used to provide information to others, that are often used in sales promotions. Sweepstakes and contests attract a lot of attention and are effective ways to provide information about products. Sweepstakes and contests are used in sales promotions rather than in advertising campaigns and publicity programs. They may be advertised through commercials on various media.