Chapter 16

When forecasting sales, small retailers usually rely on

"guesstimates"

A stock-to-sales ratio of 1.5 means that if a retailer plans sales of $50,000 in a particular month, it should have ____ worth of merchandise available during the month.

$75,000

Which of the following is not a disadvantage of cost-based inventory systems?

Cost-based inventory systems make it extremely difficult to calculate gross profit

_________ involves planning and monitoring a retailer's financial investment over a stated time period; _________ relates to the quantities of merchandise a retailer handles during a stated period.

Dollar control, unit control

The _____ method logically assumes that old merchandise is sold first.

FIFO

A perpetual inventory unit control system must be maintained through a computer-based system.

False

A visual inspection system provides information on the rate of sales of individual items.

False

During periods of rising inventory values, a FIFO method records lower profits than LIFO.

False

Price line classifications for control units enable retailers to compare their sale performance against industry standards.

False

Stock turnover can be computed on the basis of units, but not dollars.

False

The percentage variation method is based upon providing retailers with a constant cushion if sales are higher than anticipated or if shipments are delayed.

False

The retail accounting method values merchandise at cost plus inbound transportation charges.

False

Unit controls usually precede dollar controls, as a retailer must make assortment decisions before planning its dollar investment.

False

What allows a retailer to specify which products (goods and services) are purchased, when products are purchased, and how many products are purchased?

Financial merchandise management

Which statement concerning gross margin return on investment (GMROI) is correct?

GMROI shows how diverse retailers can prosper despite different gross margins and sales-to-stock ratios.

_______________ is the difference between planned purchases and purchase commitments already made by a buyer for a given time period, often a month.

Open-to-buy

With the ____ method of accounting, closing inventory value is determined by calculating the average relationship between the cost and retail values of merchandise available for sale during a period.

Retail

________ represent the difference between beginning inventory plus purchases during the period and sales plus ending inventory.

Retail reductions

Which inventory-level planning technique is most closely related to inventory turnover?

Stock-to-sales method

Which method of inventory valuation matches inventory value with a retailer's current cost structure?

The FIFO method

Which of the following is a characteristic of the retail method of inventory?

The retail method of accounting is easy to use when taking a physical inventory

A retailer's safety stock planning should reflect its desired customer service level.

True

Because of its effect on subsequent steps, an incorrect estimate of future sales throws off the entire merchandise-planning process.

True

Gross margin return on investment (GMROI) integrates profitability and sales-to-stock performance measures.

True

Order-processing costs include computer time, order forms, labor, and handling new goods.

True

Planned purchases are converted from retail values to cost on the basis of the cost complement.

True

Planned reductions = (beginning inventory + planned purchases) - (planned sales + ending inventory).

True

The book inventory system avoids the problem of infrequent financial analysis by maintaining a running total of inventory at hand on a cost basis at a given time.

True

The retail method of accounting is more complex than the cost method since retailers need to convert retail values to a cost basis.

True

The traditional economic order quantity formula does not reflect quantity discounts.

True

The weeks' supply inventory-planning method assumes inventory is in direct proportion to planned sales.

True

Together, beginning inventory, purchases, and transportation charges equal the cost of merchandise available for sale.

True

With a physical inventory system, a retailer cannot calculate gross profit until after ending inventory is valued.

True

A men's shoe chain stocks shoes priced at $49 to $59 for budget-shoe shoppers, and shoes at $79 to $99 for moderate-priced shoppers. This retailer is employing

a price line classification

Merchandise available for sale equals

beginning inventory + purchases + transportation charges.

With a _____ inventory system, the problem of infrequent financial analysis is avoided, by keeping a running total of the value of all inventory on hand at cost at a given time.

book (perpetual)

Perpetual inventory systems

can be maintained through point-of-sale devices.

Merchandise forecasting and budgeting require the selection of ________, the merchandise categories for which data are gathered.

control units

The initial step in the merchandise forecasting and budgeting process is

designating control units

Visual inspection systems

do not provide information on the rate of sales of individual items.

The monthly sales index compares each month's sales to the average monthly sales

for that retailer

A major limitation of the retail method is its

heavy bookkeeping burden associated with recording data.

Together, beginning inventory, purchases, and transportation charges equal the cost of ____________________.

merchandise available for sale

A ____________ is calculated by dividing each month's actual sales by average monthly sales and multiplying the results by 100.

monthly sales index

The difference between planned purchases and the purchase commitments already made by a buyer for a given time period equals

open-to-buy

The determination of reorder points depends on three factors: _______________, _________, and __________.

order lead time, usage rate, safety stock

The _________ method results in planned monthly inventories that are closer to the monthly average than other inventory-level planning techniques.

percentage variation

The inventory system in which ending inventory - recorded at cost - is measured by counting merchandise still in stock at the close of a selling period is called

physical inventory system

The average relationship of cost to retail value of all merchandise available for sale during an accounting period is called the __________.

retail method

Extra inventory that protects against out-of-stock conditions is called

safety stock

If a book inventory figure exceeds a physical ending inventory amount, a _________ exists.

stock shortage

A retailer seeking to maintain a specified ratio of goods on hand to sales should utilize the

stock-to-sales method

The cost of merchandise available for sale minus the cost value of ending inventory equals

the cost of goods sold

The cost complement equals

total cost valuation divided by total retail valuation

The use of stock cards in the houseware and hardware displays of many discount, department, and variety stores is an example of a ________ system.

visual inspection