1
What is the Return On Assets Managed formula (ROAM)? How can the return from a given
business segment be improved?
Answer:
Feedback:
ROAM = contribution as a percentage of sales times asset turnover rate. Return can be
improved by either increasing the contribution margin or increasing the asset turnover rate.
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:
(C)
3
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
Answer:
(A)
Order processing
4
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
Answer:
(E)
All of the above
5
Sales managers are typically LEAST concerned with the profitability of:
(A)
Regions
(B)
Customers
(C)
Divisions
(D)
Products
(E)
Salespeople
Answer:
(D)
Products
6
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
Answer:
(D)
Good profitability analyses require that the various costs be partitioned into direct and
indirect expenses so the proper aggregations can be made
7
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
Answer:
(E)
Specify the purpose for which the study is being done
8
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
Answer:
(C)
Resources, activities, and cost objects
9
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:
(B)
Not be allocated
10
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
Answer:
(D)
Create an environment where low-volume customers appear more profitable than they
actually are
11
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
Answer:
(C)
Contribution; gross
12
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
Answer:
(B)
Contributes to common costs and profits
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
Answer:
(C)
It is misleading to allocate costs arbitrarily
14
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
Answer:
(E)
Net profit
15
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
Answer:
(A)
Many indirect costs can be assigned based on a demonstrated cost relationship
16
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
Answer:
(B)
Indirect cost and general expense
17
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:
(D)
The object of measurement being used
18
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
Answer:
(E)
None of the above
19
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
Answer:
(A)
Packaging costs for each product sold
20
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
Answer:
(E)
The opportunity it provides managers to isolate segments of the business that are most
profitable as well as those that generate losses
21
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
Answer:
(E)
All of the above describes disadvantages associated with marketing cost analyses
22
What are the seven functional cost groups associated with selling?
Answer:
Feedback:
Selling-direct, selling-indirect, advertising, sales promotion, transportation, storage and
handling, and order processing.
23
What are the four steps in conducting a marketing profitability analysis?
Answer:
Feedback:
Step 1. Specify purpose and determine functional cost centers. Step 2. Spread natural
account costs to functional cost centers. Step 3. Allocate functional costs to appropriate
segments using some reasonable basis. Step 4. Sum allocated cost to determine
contribution of the segment.
24
Describe the three approaches to cost allocation.
Answer:
Feedback:
The three approaches to cost allocation are full costing, contribution analysis and activity-
based costing. Full costing or net profit involves assigning all costs in determination of
profit. The net profit approach attempts to determine where the costs were incurred.
Contribution margin analysis involves allocating only those costs that can be specifically
identified with the segment of the business. Any excess revenues over these costs
contribute to the common costs of the business. Activity-based costing allocates fixed costs
to products or other units according to the activity that creates or drives the cost.
25
Describe the four bases for sales profitability analysis? Why do firms tend to neglect
profitability analysis.
Answer:
Feedback:
The four bases for profitability analysis are products, territories, salespeople and
customers. Firms are most likely to conduct profitability analysis by product category and
least likely to do it by customer. One reason for the neglect is that most accounting
systems are designed to report aggregate results for use by creditors and stockholders and
not for sales managers.
26
What is the major benefit of marketing cost analysis?
Answer:
Feedback:
It provides marketing managers with the information to isolate segments of their business
that are most profitable and those that are least profitable. This information can be used in
planning and resource allocation.
27
How should direct selling costs be functionally allocated?
Answer:
Feedback:
Within product groups, selling time devoted to each product should be allocated by product
groups. By account size classes, the number of sales calls times the average time per call
should be allocated to account classes. By sales territories, selling costs should be allocated
directly.
28
How should advertising costs be functionally allocated?
Answer:
Feedback:
Within product groups, advertising costs should be directly allocated to each group. By
account size classes, advertising costs should be equally charged to each account or by the
number of ultimate consumers and prospects in each account’s trading area. Advertising
costs should be allocated directly by territory or by analysis of media circulation records.
29
Why should costs not be allocated based on sales volume?
Answer:
Feedback:
Allocating costs based on sales volume fails to recognize the purpose for which the costs
were incurred. While it is a simple system, it does not apply functional cost analysis.
30
What is the difference between natural and functional accounts?
Answer:
Feedback:
Natural accounts bear the name of their expense categories. Functional accounts recognize
the function performed, which is the purpose for incurring the cost.
31
What is the difference between specific and general expenses?
Answer:
Feedback:
Specific expenses are like a direct cost, they can be identified with a specific product or
function. General expenses are like an indirect cost, they are tied to more than one product
or function.
32
What is the distinction between a cost and an expense?
Answer:
Feedback:
A cost is often restricted to the materials, labor, power, rent and other miscellaneous items
used in making the product. Expenses reflect other costs incurred in operating the
business.
33
What is the difference between a direct cost and an indirect cost?
Answer:
Feedback:
A direct cost can be specifically identified with a product or function. An indirect cost is a
shared cost because it is tied to several functions or products.
34
What are the three bases of cost allocation?
Answer:
Feedback:
The three bases are full costing, contribution analysis and activity-based costing.
35
What activities are involved when doing marketing cost analysis?
Answer:
Feedback:
Researchers gather, classify, compare and study cost data.
36
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
Answer:
(C)
Contribution as a percentage of sales times the asset turnover rate
37
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
Answer:
(B)
The goal of ROAM is to reach an optimal level of investment
38
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
Answer:
(D)
The lack of tangible profit as a result of such an analysis
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
Answer:
(C)
A salesperson’s salary would be a direct cost for his or her territory, but an indirect cost
for the product sold
40
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
Answer:
(D)
A brochure describing the features of its livestock trailers
41
__________ 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
Answer:
(B)
Expenses
42
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.
(A)
True
(B)
False
Answer:
(B)
False
Feedback:
The profitability analysis by sales representative does not include an allocation for the
warehouseperson’s salary because that salary would continue regardless of what the sales
representative sold.
43
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.
(A)
True
(B)
False
Answer:
(A)
True
44
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.
(A)
True
(B)
False
Answer:
(A)
True
45
Functional cost groups include selling, advertising, storage and shipping, and
transportation.
(A)
True
(B)
False
Answer:
(A)
True
46
Costs should be allocated according to a product’s sales volume.
(A)
True
(B)
False
Answer:
(B)
False
Feedback:
The trend is to use activity based costing.
47
The first step in conducting a market profitability analysis is to specify the purpose of the
cost study and determine functional cost centers.
(A)
True
(B)
False
Answer:
(A)
True
48
It is relatively simple to conduct a cost or profitability analysis.
(A)
True
(B)
False
Answer:
(B)
False
Feedback:
It is relatively complex to conduct a cost or profitability analysis.
49
Accounting-based costing (ABC) identifies the cause-and-effect relationship between costs
and desired organizational outcomes.
(A)
True
(B)
False
Answer:
(A)
True
50
An argument that supports the contribution-margin approach is the fact that most
marketing phenomena are highly interrelated.
(A)
True
(B)
False
Answer:
(A)
True
51
Contribution margin advocates argue that costs should be arbitrarily allocated.
(A)
True
(B)
False
Answer:
(B)
False
Feedback:
Contribution margin advocates argue that it is misleading to allocate costs arbitrarily. They
suggest that only those costs that can be specifically identified with the segment of the
business should be deducted from the revenue produced by the segment to determine how
well the segment is doing.
52
The cost of renting a warehouse to store component parts for making various sizes of
electric generators is an example of a general expense.
(A)
True
(B)
False
Answer:
(B)
False
Feedback:
The cost of renting a warehouse is an indirect expense.
53
Delivery cost for plastic polymer film to shrink wrap yo-yos is an example of a direct cost.
(A)
True
(B)
False
Answer:
(A)
True
54
One reason marketing managers have neglected consideration of costs is that accounting
systems were designed to report aggregate effects of the firm’s operations.
(A)
True
(B)
False
Answer:
(A)
True
55
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.
(A)
True
(B)
False
Answer:
(A)
True
56
Marketing costs analysis cannot help managers identify opportunities for increasing the
effectiveness of marketing expenditures.
(A)
True
(B)
False
Answer:
(B)
False
Feedback:
Marketing cost analysis can help identify opportunities for increasing the effectiveness of
marketing expenditures.
57
All sales are achieved at some cost.
(A)
True
(B)
False
Answer:
(A)
True
58
Critical to an assessment of a customer’s lifetime value is an analysis of the costs
associated with doing business with that customer.
(A)
True
(B)
False
Answer:
(A)
True
59
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.
(A)
True
(B)
False
Answer:
(A)
True
60
Sales and cost analyses are important tools for a sales manager because they measure the
results achieved and the costs of producing those results.
(A)
True
(B)
False
Answer:
(A)
True
61
Return on assets managed equals contribution of the asset as a percentage of sales
multiplied by the inventory turnover rate.
(A)
True
(B)
False
Answer:
(B)
False
Feedback:
Return on assets managed equals the contribution as a percentage of sales multiplied by
the asset turnover rate.
62
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
Answer:
(E)
Cost
63
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
Answer:
(A)
Indirect cost
64
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
Answer:
(E)
Direct cost
65
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
Answer:
(C)
Costs are allocated
66
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
Answer:
(B)
The pricing authority of salespeople
67
If they do profitability analysis, companies are most likely to do it for:
(A)
Products
(B)
Customers
(C)
Territories
(D)
Salespeople
(E)
Management
Answer:
(A)
Products
68
Which of the following is NOT one of the bases for profitability analysis?
(A)
Products
(B)
Customers
(C)
Territories
(D)
Management
(E)
Salespeople
Answer:
(D)
Management
69
Companies are more likely to conduct _______ analysis than profitability analysis.
(A)
Accounting
(B)
Sales
(C)
Headquarters
(D)
Customer relationship management
(E)
Production
Answer:
(B)
Sales
70
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
Answer:
(B)
Output/input
71
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
Answer:
(E)
All of the above
72
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
Answer:
(A)
The potential for new business
73
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
Answer:
(D)
Lifetime value of the customer
74
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
Answer:
(B)
Sales or profit per unit of marketing effort
75
The essence of marketing cost analysis is to ___________ cost data.
(A)
Gather
(B)
Classify
(C)
Compare
(D)
Study
(E)
All of the above
Answer:
(E)
All of the above
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
Answer:
(C)
Results achieved; incurred
77
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
Answer:
(D)
Marketing cost analysis focuses on the results achieved to determine if the returns
justify the expenditures
78
Cost and profitability analyses are much more commonly used than sales analyses.
(A)
True
(B)
False
Answer:
(B)
False
Feedback:
Sales analysis in managing the personal selling function is much more commonly used than
cost or profitability analysis.
79
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.
(A)
True
(B)
False
Answer:
(A)
True