Test Bank of Business Essentials 8th Canadian Edition By Ronald J. Ebert

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Test Bank of business essentials 8th Canadian Edition By Ronald J. Ebert

 

Chapter 4   Entrepreneurship, Small Business, and New Venture Creation

 

4.1   Multiple-Choice Questions

 

1) Self-employed Canadians account for about ________ percent of the workforce.

  1. A) 3
  2. B) 5
  3. C) 16
  4. D) 22
  5. E) 34

Answer:  C

Diff: 3     Type: MC     Page Ref: 75

Skill:  Knowledge

Objective:  4.1

 

2) Approximately how many new businesses are started each day in Canada?

  1. A) 25
  2. B) 100
  3. C) 250
  4. D) 380
  5. E) 500

Answer:  D

Diff: 3     Type: MC     Page Ref: 75

Skill:  Knowledge

Objective:  4.1

 

3) Individuals who both recognize and seize opportunities are referred to as

  1. A) speculators.
  2. B) franchisees.
  3. C) entrepreneurs.
  4. D) intrapreneurs.
  5. E) independents.

Answer:  C

Diff: 1     Type: MC     Page Ref: 76

Skill:  Knowledge

Objective:  4.1

 

 

4) Entrepreneurs often have more than one goal for starting a business and becoming self-employed. Which of the following reasons is probably the least common goal of entrepreneurs?

  1. A) To seek independence and be their own boss
  2. B) To earn a comfortable living for a period of time
  3. C) To grow and expand a current business
  4. D) To meet community or social obligations
  5. E) To provide for their financial needs

Answer:  D

Diff: 1     Type: MC     Page Ref: 76

Skill:  Knowledge

Objective:  4.1

5) A new firm is

  1. A) one that has been in business for 5 years or less.
  2. B) one that has not yet opened for business.
  3. C) one with less than 10 years’ experience.
  4. D) one that has become operational within the previous 12 months.
  5. E) one that opened its doors within the past 6 months.

Answer:  D

Diff: 2     Type: MC     Page Ref: 76

Skill:  Comprehension

Objective:  4.1

 

6) How are intrapreneurs different from entrepreneurs?

  1. A) The former are women and the latter are men.
  2. B) The former are older than the latter.
  3. C) The former work within an existing business while the latter start their own business.
  4. D) The former earn less money than the latter.
  5. E) There is not difference between the two terms.

Answer:  C

Diff: 1     Type: MC     Page Ref: 76

Skill:  Comprehension

Objective:  4.1

 

7) A small business is an owner managed business with less than ________ employees.

  1. A) 25
  2. B) 50
  3. C) 10
  4. D) 500
  5. E) 100

Answer:  E

Diff: 2     Type: MC     Page Ref: 75

Skill:  Knowledge

Objective:  4.1

 

 

8) What percentage of Canada’s GDP is contributed by small businesses?

  1. A) 7 percent
  2. B) 13 percent
  3. C) 19 percent
  4. D) 30 percent
  5. E) 41 percent

Answer:  D

Diff: 3     Type: MC     Page Ref: 77

Skill:  Knowledge

Objective:  4.1

9) Which of the following is correct with regard to small business?

  1. A) Various measures might be used to define a small business, including the number of people the business employs, the company’s sales revenue, the size of the investment required, or the type of ownership structure the business has.
  2. B) Since the Business Register tracks businesses and the Labour Force Survey tracks individuals, these sources of information are not useful in defining the term “small business.”
  3. C) To be included in the Business Register, a business must have at least five paid employees.
  4. D) In the Business Register, a goods-producing company is considered small if it has fewer than 500 employees, while a service-producing business is considered small if it has fewer than 100 employees.
  5. E) All of these are correct.

Answer:  A

Diff: 3     Type: MC     Page Ref: 75

Skill:  Comprehension

Objective:  4.1

 

10) According to Industry Canada there are about ________ people who are “self- employed” and about ________ “business establishments.”

  1. A) 1.2 million; 1.2 million
  2. B) 5 million; 500 000
  3. C) 2.7 million; 2.2 million
  4. D) 725 000; 500 000
  5. E) 225 000; 225 000

Answer:  C

Diff: 3     Type: MC     Page Ref: 75

Skill:  Knowledge

Objective:  4.1

 

 

11) In the Business Register, a goods-producing business is considered small if it has fewer than ________ employees, and a service-producing business is considered small if it has fewer than ________ employees.

  1. A) 1000; 500
  2. B) 500; 1000
  3. C) 100; 50
  4. D) 500; 250
  5. E) 250; 500

Answer:  C

Diff: 2     Type: MC     Page Ref: 75

Skill:  Knowledge

Objective:  4.1

12) In the 2015 Heritage Foundation index of economic freedom, the top three countries were ________; Canada ranked ________.

  1. A) Australia, Japan, and Singapore; 25th
  2. B) the United States, Germany, and Japan; 8th
  3. C) the United States, Ireland, and Germany; 11th
  4. D) Hong Kong, Singapore, and New Zealand; 6th
  5. E) China, Japan, and South Vietnam; 37th

Answer:  D

Diff: 3     Type: MC     Page Ref: 76

Skill:  Knowledge

Objective:  4.1

 

13) The Heritage Foundation’s “index of economic freedom” measures

  1. A) how well command economies are performing compared to market economies.
  2. B) the extent to which entrepreneurs have freedom to pursue new business opportunities.
  3. C) how well entrepreneurs are performing in advanced industrialized countries compared to developing economies.
  4. D) how much profit entrepreneurs are making in command economies compared to market economies.
  5. E) the economic freedom entrepreneurs have in various countries, using the United States as the comparison point.

Answer:  B

Diff: 2     Type: MC     Page Ref: 76

Skill:  Comprehension

Objective:  4.1

 

 

14) At Telus, the redesign of the company’s website was the result of ________ in a large firm.

  1. A) product refinement
  2. B) intrapreneurship
  3. C) entrepreneurship
  4. D) starting a business from scratch
  5. E) marketing research

Answer:  B

Diff: 2     Type: MC     Page Ref: 76

Skill:  Comprehension

Objective:  4.1

 

15) The part of the economy that is made up of companies and organizations not owned or controlled by the government is called

  1. A) crown corporations.
  2. B) split sector.
  3. C) legislated corporations.
  4. D) public sector.
  5. E) the private sector.

Answer:  E

Diff: 2     Type: MC     Page Ref: 77

Skill:  Knowledge

Objective:  4.2

16) According to Industry Canada, small businesses account for over two thirds of employment in all of the following except

  1. A) other services.
  2. B) construction.
  3. C) accommodation and food.
  4. D) manufacturing.
  5. E) non-institutional health care.

Answer:  D

Diff: 2     Type: MC     Page Ref: 77

Skill:  Knowledge

Objective:  4.2

 

17) What percentage of businesses in Canada have less than 100 employees?

  1. A) 98
  2. B) 58
  3. C) 88
  4. D) 78
  5. E) 28

Answer:  A

Diff: 2     Type: MC     Page Ref: 77

Skill:  Knowledge

Objective:  4.2

 

 

18) During the period from 2002 to 2012, small businesses created ________ percent of all the jobs in Canada.

  1. A) 8
  2. B) 15
  3. C) 28
  4. D) 43
  5. E) 77

Answer:  E

Diff: 2     Type: MC     Page Ref: 77

Skill:  Knowledge

Objective:  4.2

 

19) Women account for ________ of all new businesses that are formed, and they lead ________ percent of the small- and medium-sized businesses that export goods and services.

  1. A) About one-fifth; 6
  2. B) about one-quarter; 18
  3. C) about one-third; 18
  4. D) more than one-half; 12
  5. E) two-thirds; 24

Answer:  D

Diff: 2     Type: MC     Page Ref: 77

Skill:  Knowledge

Objective:  4.2

20) What are the three key elements in the entrepreneurial process?

  1. A) The entrepreneur, the opportunity, and the marketing plan
  2. B) The marketing plan, the production plan, and the finance plan
  3. C) The product (or service) plan, the entrepreneur, and luck
  4. D) The entrepreneur, the opportunity, and the resources
  5. E) The financing plan, the product (or service) plan, and luck

Answer:  D

Diff: 2     Type: MC     Page Ref: 78

Skill:  Knowledge

Objective:  4.3

 

21) Which is the most common source of ideas for a new venture?

  1. A) Brainstorming
  2. B) Family
  3. C) Work experiences
  4. D) Children
  5. E) Magazines

Answer:  C

Diff: 1     Type: MC     Page Ref: 78

Skill:  Knowledge

Objective:  4.3

 

 

22) Which of the following is correct with regard to the issue of where new ideas for a business come from?

  1. A) The most important source of ideas for a new venture arise as the result of a conscious search for new venture ideas.
  2. B) About half of all new venture ideas come from insights gained or skills learned at a previous job.
  3. C) Personal hobbies or interests are the most important source of ideas for a new venture.
  4. D) Suggestions from family members are an important (but not the most important) factor in coming up with new venture ideas.
  5. E) There is no particular pattern in the development of ideas for a new venture.

Answer:  B

Diff: 3     Type: MC     Page Ref: 78-79

Skill:  Comprehension

Objective:  4.3

 

23) Sam has always been interested in starting his own business but, as a recent graduate, is not certain where he can get ideas. Which of the following is a good reliable source for information needed to make the decision to start a new business?

  1. A) Experience in industry before starting a new business
  2. B) Parents
  3. C) Teachers
  4. D) Bankers
  5. E) Business analysts

Answer:  A

Diff: 2     Type: MC     Page Ref: 78-79

Skill:  Comprehension

Objective:  4.3

24) When screening ideas, an entrepreneur would ask all of the following questions except

  1. A) is the idea marketable?
  2. B) does this idea have a high entrance cost?
  3. C) does this idea create or add value for the customer?
  4. D) does the idea provide a sustainable competitive advantage?
  5. E) is the idea financially viable?

Answer:  B

Diff: 1     Type: MC     Page Ref: 79-80

Skill:  Comprehension

Objective:  4.3

 

 

25) With regard to the process of screening possible ideas for a new idea, which of the following is correct?

  1. A) Determining whether or not the new idea adds value for customers is not essential at this early stage of the process.
  2. B) It is not possible to determine at this early stage whether a new idea will actually give a company a sustained competitive advantage.
  3. C) It is important to determine if sales will lead to profits.
  4. D) If the idea is not expected to result in making a profit for a number of years, exit costs are low.
  5. E) All of these are correct.

Answer:  C

Diff: 1     Type: MC     Page Ref: 79-80

Skill:  Comprehension

Objective:  4.3

 

26) Erin feels that she has a wonderful opportunity to create a new apple beverage she saw in Europe by using surplus apples grown near Georgian Bay in Ontario. At this point, which question must she answer in evaluating this opportunity?

  1. A) What interest rate will be charged for financing the purchase of capital equipment?
  2. B) What depreciation procedures will be used?
  3. C) What kind of computers should I purchase?
  4. D) Where will my business be located?
  5. E) Are there enough customers willing to buy this product?

Answer:  E

Diff: 2     Type: MC     Page Ref: 79-80

Skill:  Comprehension

Objective:  4.3

 

27) Robert wants to start a new business. At this point, he needs to ask himself all of the following questions except

  1. A) what is my competitive advantage?
  2. B) how much will the customer buy?
  3. C) what legal form should the business take?
  4. D) what value is created or added to for the customer?
  5. E) what is the marketability of this idea?

Answer:  C

Diff: 2     Type: MC     Page Ref: 79-80

Skill:  Comprehension

Objective:  4.3

 

28) Franchising is a contract between a(n) ________ and a(n) ________ that stipulates how ________ or ________ will be sold.

  1. A) buyer; seller; a product; a service
  2. B) retailer; outlet owner; food; a service
  3. C) manufacturer; dealer; a product; a service
  4. D) manufacturer; seller; a service; a product
  5. E) outlet owner; dealer; food; a service

Answer:  C

Diff: 3     Type: MC     Page Ref: 81

Skill:  Knowledge

Objective:  4.3

 

29) A financial forecast includes all of the following items except

  1. A) a cash budget.
  2. B) an estimate of start-up costs.
  3. C) an income statement.
  4. D) a listing of potential customers.
  5. E) a balance sheet.

Answer:  D

Diff: 3     Type: MC     Page Ref: 80

Skill:  Comprehension

Objective:  4.3

 

30) A ________ typically includes a company description, product description, marketing analysis and plan, operating plan, financial plan, and other supporting information.

  1. A) bank loan application
  2. B) business plan
  3. C) tax application
  4. D) partnership agreement
  5. E) grant application

Answer:  B

Diff: 2     Type: MC     Page Ref: 81

Skill:  Knowledge

Objective:  4.3

 

31) Which of the following is correct with regard to business planning?

  1. A) A business plan is a good thing to have, but it is generally not a requirement for securing resources for the proposed new venture.
  2. B) If market conditions are changing rapidly, the benefits gained from extensive research and planning will diminish quickly.
  3. C) If the product is highly innovative, research is particularly important.
  4. D) Planning should be completed before action is taken.
  5. E) All things considered, it is probably best to plan to start as a franchise.

Answer:  B

Diff: 2     Type: MC     Page Ref: 81

Skill:  Comprehension

Objective:  4.3

32) Bootstrapping means

  1. A) doing more with less.
  2. B) selling shares.
  3. C) designing new products.
  4. D) preparing a business plan.
  5. E) creating new ideas.

Answer:  A

Diff: 3     Type: MC     Page Ref: 82

Skill:  Knowledge

Objective:  4.3

 

33) Assets that a borrower uses to secure a loan or other credit are referred to as

  1. A) financed assets.
  2. B) tangible assets.
  3. C) fixed assets.
  4. D) collateral.
  5. E) assignments.

Answer:  D

Diff: 1     Type: MC     Page Ref: 82

Skill:  Knowledge

Objective:  4.3

 

34) One popular source of equity capital is informal capital from private investors who are known as

  1. A) private loaners.
  2. B) traditional lenders.
  3. C) pseudo loaners.
  4. D) off-the-books financers.
  5. E) angels.

Answer:  E

Diff: 2     Type: MC     Page Ref: 82

Skill:  Knowledge

Objective:  4.3

 

35) Which one of the following statements is correct?

  1. A) Love money is a form of debt financing.
  2. B) Suppliers typically provide long-term financing.
  3. C) Debt financing refers to money invested by the owner in the company.
  4. D) Borrowing money reduces the potential for higher returns when a business is performing well.
  5. E) Banks are typically risk averse.

Answer:  E

Diff: 2     Type: MC     Page Ref: 82

Skill:  Comprehension

Objective:  4.3

 

36) Bootstrapping involves all of the following actions except

  1. A) acquiring resources such as people and equipment.
  2. B) doing more with less.
  3. C) purchasing as many resources as possible.
  4. D) using other people’s resources.
  5. E) borrowing materials.

Answer:  C

Diff: 1     Type: MC     Page Ref: 82

Skill:  Knowledge

Objective:  4.3

 

37) Venture capitalists

  1. A) require collateral for all transactions.
  2. B) are risk averse lenders.
  3. C) invest funds from professionally managed pools of investor money.
  4. D) offer loans with a maximum 90-day payback period.
  5. E) are individuals in the United States who are willing to loan money to Canadians who want to start a business.

Answer:  C

Diff: 2     Type: MC     Page Ref: 82

Skill:  Comprehension

Objective:  4.3

 

38) Karen is trying to assess whether she can start her own small business. But, as with many small businesses, money is a problem. She asks for your help. You indicate that the most likely source of money for starting up a small business is

  1. A) family investment.
  2. B) lottery winnings.
  3. C) banks.
  4. D) credit unions.
  5. E) personal savings.

Answer:  E

Diff: 2     Type: MC     Page Ref: 82

Skill:  Comprehension

Objective:  4.3

 

 

39) With respect to the financing of a business, which one of the following statements is accurate?

  1. A) Love money is the most popular form of debt financing.
  2. B) Suppliers typically provide long-term financing.
  3. C) Debt financing refers to money invested by the owner in the company.
  4. D) Borrowing money reduces the potential for higher returns when a business is performing well.
  5. E) Banks are typically risk averse.

Answer:  E

Diff: 2     Type: MC     Page Ref: 82

Skill:  Comprehension

Objective:  4.3

40) Which of the following statements is (are) correct with respect to financing a business?

  1. A) Debt financing refers to money that is borrowed, while equity financing refers to money that is invested in the business by investors in return for a share of the ownership of the company.
  2. B) The most common source of debt financing is venture capitalists.
  3. C) Choosing between debt and equity financing involves trade-offs with regard to immediate vs. long-term profitability.
  4. D) Most new venture founders prefer equity financing because they are reluctant to give up any control to outsiders.
  5. E) All these statements are correct.

Answer:  A

Diff: 1     Type: MC     Page Ref: 82

Skill:  Comprehension

Objective:  4.3

 

41) Which source of capital is identified as a group of small investors who are willing to invest money into the new firm in exchange for an ownership share?

  1. A) Venture capital firm
  2. B) Foreign investors
  3. C) Stockbroker syndicate
  4. D) Silent domestic partner
  5. E) Banks

Answer:  A

Diff: 2     Type: MC     Page Ref: 82

Skill:  Knowledge

Objective:  4.3

 

 

42) Trade credit is

  1. A) the selling of bonds or debentures.
  2. B) reinvested in the enterprise.
  3. C) paid to the owners in the form of dividends.
  4. D) derived from funds generated from the operation of the business.
  5. E) delayed payment terms offered by suppliers.

Answer:  E

Diff: 2     Type: MC     Page Ref: 82

Skill:  Comprehension

Objective:  4.3

 

43) An example of a debt source of funds is ________ and an example of an equity source of funds is ________.

  1. A) family and friends; venture capitalists
  2. B) private lenders; family and friends
  3. C) private lenders; trade credit
  4. D) venture capitalists; private lenders
  5. E) family and friends; private lenders

Answer:  B

Diff: 3     Type: MC     Page Ref: 82

Skill:  Comprehension

Objective:  4.3

44) A business is normally at its riskiest point during the ________ phase.

  1. A) preliminary
  2. B) growth
  3. C) start-up
  4. D) maturity
  5. E) conception

Answer:  C

Diff: 2     Type: MC     Page Ref: 82

Skill:  Knowledge

Objective:  4.3

 

45) All of the following are common sources of equity for new ventures except

  1. A) banks.
  2. B) personal savings.
  3. C) love money.
  4. D) private investors.
  5. E) venture capitalists.

Answer:  A

Diff: 2     Type: MC     Page Ref: 82

Skill:  Knowledge

Objective:  4.3

 

 

46) Which of the following is correct with regard to collateral?

  1. A) It refers to business (but not personal) assets that a borrower uses to secure a loan or other credit.
  2. B) It consists of tangible assets like buildings as well as intangible assets like goodwill.
  3. C) Collateral can be seized by the lender if the loan is not repaid according to specified terms.
  4. D) It refers to personal (but not business) assets that a borrower uses to secure a loan or other credit.
  5. E) Banks are most impressed with debt investment.

Answer:  C

Diff: 2     Type: MC     Page Ref: 82

Skill:  Comprehension

Objective:  4.3

 

47) Which of the following statements is accurate?

  1. A) Love money is a form of debt financing.
  2. B) Borrowing money reduces the potential for higher returns when a business is performing well.
  3. C) Debt financing refers to money invested by the owner in the company.
  4. D) Banks are typically risk averse.
  5. E) Suppliers typically provide long term-financing.

Answer:  D

Diff: 2     Type: MC     Page Ref: 82

Skill:  Comprehension

Objective:  4.3

48) The ________ fit involves determining if the resources needed to capitalize on the opportunity can be acquired.

  1. A) resource-entrepreneur
  2. B) personal-entrepreneur
  3. C) entrepreneur-opportunity
  4. D) opportunity-resource
  5. E) entrepreneur-resource

Answer:  D

Diff: 2     Type: MC     Page Ref: 84

Skill:  Knowledge

Objective:  4.3

 

 

49) Judy is a graduate from a denturist program. Normally, graduates start up their own business, much like dentists and doctors. She has the choice of starting on her own or buying an existing practice. What is an advantage for her of starting a new business from scratch?

  1. A) No problems as a result of the prior owner’s errors
  2. B) Odds are better to succeed
  3. C) Relationship with suppliers already established
  4. D) Needs and desires of customers known
  5. E) The risks are lower than if she were to buy an existing practice

Answer:  A

Diff: 1     Type: MC     Page Ref: 85

Skill:  Comprehension

Objective:  4.4

 

50) Which of the following is the most significant disadvantage of starting a business from scratch?

  1. A) Having few employees
  2. B) Inability to franchise
  3. C) Having competition
  4. D) Coming up with new ideas
  5. E) The risk of failure

Answer:  E

Diff: 1     Type: MC     Page Ref: 85

Skill:  Comprehension

Objective:  4.4

 

51) Harold’s father owns a plumbing business, which Harold will likely take over. However, Harold needs to know the problems that beset family businesses. Which of the following is not a problem in a family business?

  1. A) Untrained and uneducated family members as personnel
  2. B) Failure to respond to changing market conditions
  3. C) Choosing an appropriate successor
  4. D) Consistent under-financing
  5. E) Disagreement among family members about the future of the business

Answer:  D

Diff: 2     Type: MC     Page Ref: 85

Skill:  Comprehension

Objective:  4.4

 

52) Jody is a young graduate from a business program. She can either help out in the family business or work with another organization. Which of the following is not a typical advantage associated with a family business?

  1. A) Highly trained individuals
  2. B) Valuable community relationships
  3. C) Personal sacrifices leading to financial advantage
  4. D) High employee loyalty
  5. E) Unified family management

Answer:  A

Diff: 1     Type: MC     Page Ref: 85

Skill:  Comprehension

Objective:  4.4

 

53) Ted is about to take over a family business. The issues of which he should be aware include all of the following except

  1. A) assuring economic security for the retiring leader and spouse.
  2. B) training the successor.
  3. C) benefits for the successor.
  4. D) timing the succession.
  5. E) successor selection.

Answer:  C

Diff: 1     Type: MC     Page Ref: 85

Skill:  Comprehension

Objective:  4.4

 

54) Margaret has an opportunity to buy an existing business. She should be knowledgeable about all of the following issues except

  1. A) the location of the business.
  2. B) legal form of the business.
  3. C) difficulty in determining an appropriate price for the business.
  4. D) incomplete knowledge of the state of the business.
  5. E) the reputation of the business.

Answer:  B

Diff: 1     Type: MC     Page Ref: 85

Skill:  Comprehension

Objective:  4.4

 

55) About one-third of all new businesses owners

  1. A) buy an existing business.
  2. B) start from scratch.
  3. C) buy out a partner.
  4. D) win the business in a draw.
  5. E) inherit the business.

Answer:  A

Diff: 2     Type: MC     Page Ref: 85

Skill:  Comprehension

Objective:  4.4

56) To start up a new business by operating under a license issued by a parent company to local entrepreneurs who own and manage the business is known as

  1. A) a small business.
  2. B) a macroenterprise.
  3. C) an enterprise.
  4. D) a microenterprise.
  5. E) a franchise.

Answer:  E

Diff: 1     Type: MC     Page Ref: 86

Skill:  Comprehension

Objective:  4.4

 

57) Roger has made a list of what he considers to be advantages of buying a franchise. You tell him that one item on his list is not an advantage. Which one is it?

  1. A) Improved chances of success
  2. B) Access to big business management skills
  3. C) Don’t have to build a business step by step
  4. D) Incentive of owning your own business
  5. E) Low start-up costs

Answer:  E

Diff: 2     Type: MC     Page Ref: 86

Skill:  Comprehension

Objective:  4.4

 

58) What is the most significant disadvantage of owning a franchise?

  1. A) Start-up costs
  2. B) Operational guidelines
  3. C) Difficulty obtaining loans
  4. D) Double taxation
  5. E) Competition

Answer:  A

Diff: 2     Type: MC     Page Ref: 86

Skill:  Comprehension

Objective:  4.4

 

59) Which of the following is not likely to be provided by the seller of a franchise?

  1. A) Financing help
  2. B) Guarantee of success
  3. C) Marketing strategy
  4. D) Training for employees and managers
  5. E) Management advice

Answer:  B

Diff: 2     Type: MC     Page Ref: 86-87

Skill:  Comprehension

Objective:  4.4

 

60) Which of the following is considered an advantage for both the franchisee and the franchisor?

  1. A) Guaranteed success
  2. B) Economies of scale in buying
  3. C) Promotion savings
  4. D) Recognition
  5. E) Management assistance

Answer:  D

Diff: 2     Type: MC     Page Ref: 86-87

Skill:  Comprehension

Objective:  4.4

 

61) The benefits of franchising the franchiser enjoys include all of the following except

  1. A) more revenue.
  2. B) more financing.
  3. C) more involvement in the details of local operations.
  4. D) advertising money is spent more efficiently.
  5. E) rapid growth.

Answer:  C

Diff: 2     Type: MC     Page Ref: 86-87

Skill:  Comprehension

Objective:  4.4

 

62) In a franchise agreement, the ________ is purchasing the right to sell the products of the ________.

  1. A) franchisee; franchiser
  2. B) franchiser; parent company
  3. C) franchiser; franchisee
  4. D) pigeon; shyster
  5. E) subleaser; leaser

Answer:  A

Diff: 2     Type: MC     Page Ref: 86-87

Skill:  Knowledge

Objective:  4.4

 

63) Molly believes that success is almost guaranteed when one buys a franchise. You point out that she should consider the costs such as

  1. A) emergency needs.
  2. B) operational expenses.
  3. C) the franchise sales price.
  4. D) training expenses.
  5. E) all of these.

Answer:  E

Diff: 1     Type: MC     Page Ref: 86

Skill:  Comprehension

Objective:  4.4

 

64) Which of the following is not one of the disadvantages of owning a franchise?

  1. A) High failure rates
  2. B) Sacrifice of independence
  3. C) Difficult to terminate
  4. D) On-going payments to the parent company
  5. E) High start-up costs

Answer:  A

Diff: 2     Type: MC     Page Ref: 86-87

Skill:  Comprehension

Objective:  4.4

 

65) Which of the following is an advantage for the franchisee?

  1. A) Freed from detail of local operations
  2. B) Recognition
  3. C) Rapid growth for the franchise
  4. D) Low entry cost
  5. E) Guaranteed success

Answer:  B

Diff: 2     Type: MC     Page Ref: 86-87

Skill:  Comprehension

Objective:  4.4

 

66) Viola wants to be a business owner and is contemplating whether to start her own business or open a franchise. Which of the following, if true, would be a compelling reason for Viola to open a franchise rather than start a new business?

  1. A) The franchiser requires $3000 in start-up costs and a 5 percent monthly royalty fee.
  2. B) The franchiser tightly controls and monitors the service protocol.
  3. C) The franchisee is responsible for developing all marketing materials.
  4. D) The company has only recently become a franchise.
  5. E) There are several other franchises with the same company in the area.

Answer:  A

Diff: 2     Type: MC     Page Ref: 86-87

Skill:  Application

Objective:  4.4

 

67) Franchising accounts for about ________ percent of retail sales in Canada and ________ percent of GDP.

  1. A) 10; 20
  2. B) 20; 30
  3. C) 40; 10
  4. D) 60; 15
  5. E) 80; 55

Answer:  C

Diff: 3     Type: MC     Page Ref: 86

Skill:  Knowledge

Objective:  4.4

 

68) Olivia has found a viable business, a small furniture store, she is interested in purchasing. She has learned that the store is supplied by reliable vendors and has a steady stream of local and online buyers. What should be Olivia’s next step at this point?

  1. A) Analyze the furniture store’s past financial statements
  2. B) Start negotiating a purchase price with the current owner
  3. C) Approach a banking institution about financing her purchase
  4. D) Consult a marketing agency about ways to reach more customers
  5. E) Search for vendors that can provide similar products at lower costs

Answer:  A

Diff: 2     Type: MC     Page Ref: 85

Skill:  Application

Objective:  4.4

 

69) Which of the following is a key contributing factor to the success of a small business?

  1. A) Hard work, drive, and dedication
  2. B) Overcapitalization
  3. C) Strong control systems
  4. D) Creativity
  5. E) Insufficient capital

Answer:  A

Diff: 1     Type: MC     Page Ref: 87

Skill:  Comprehension

Objective:  4.5

 

70) Which is the most important reason for the failure of small business?

  1. A) Poor marketing
  2. B) Managerial incompetence
  3. C) Loss of interest in the business
  4. D) Fraud
  5. E) Poor production capabilities

Answer:  B

Diff: 2     Type: MC     Page Ref: 87

Skill:  Comprehension

Objective:  4.5

 

71) A new business typically adopts one of four main organizational forms. They are

  1. A) franchise, sole proprietorship, partnership, or corporation.
  2. B) franchise, partnership, corporation, or co-operative.
  3. C) sole proprietorship, franchise, corporation, or co-operative.
  4. D) sole proprietorship, partnership, corporation, or co-operative.
  5. E) debt, equity, venture capital, or gifted.

Answer:  D

Diff: 2     Type: MC     Page Ref: 88

Skill:  Knowledge

Objective:  4.6

 

72) The features of a sole proprietorship include all the following except

  1. A) a lot of government paperwork.
  2. B) simple to form.
  3. C) easy to dissolve.
  4. D) limited resources.
  5. E) unlimited liabilities.

Answer:  A

Diff: 2     Type: MC     Page Ref: 88

Skill:  Comprehension

Objective:  4.6

 

73) Which of the following is not typical for a sole proprietorship?

  1. A) Limited liability
  2. B) Losing money at start-up
  3. C) Lack of continuity
  4. D) Easy to dissolve
  5. E) Hard to borrow money

Answer:  A

Diff: 2     Type: MC     Page Ref: 88

Skill:  Comprehension

Objective:  4.6

 

74) Sam Clark has a custom cheesecake business that he owns and operates out of his home. Sam’s ownership structure likely is

  1. A) a franchise.
  2. B) a limited partnership.
  3. C) a partnership.
  4. D) a corporation.
  5. E) a sole proprietorship.

Answer:  E

Diff: 2     Type: MC     Page Ref: 88

Skill:  Comprehension

Objective:  4.6

 

75) Shirley is opening a flower shop and has decided to operate as a sole proprietorship. Which of the following is not an advantage Shirley will have in operating her business?

  1. A) Freedom
  2. B) Simplicity of operation
  3. C) Limited liability
  4. D) Low start-up costs
  5. E) Choice of location

Answer:  C

Diff: 2     Type: MC     Page Ref: 88

Skill:  Comprehension

Objective:  4.6

 

76) Tax laws permit ________ to treat the sales revenues and operating expenses of the business as part of their personal finances.

  1. A) sole proprietorships
  2. B) joint ventures
  3. C) privately-held corporations
  4. D) either publicly-held or privately-traded corporations
  5. E) publicly-held corporations

Answer:  A

Diff: 1     Type: MC     Page Ref: 88

Skill:  Comprehension

Objective:  4.6

 

77) Low start-up costs, simplicity in formation, and freedom are advantages in establishing a

  1. A) corporation.
  2. B) sole proprietorship.
  3. C) partnership.
  4. D) joint venture.
  5. E) co-operative.

Answer:  B

Diff: 2     Type: MC     Page Ref: 88

Skill:  Comprehension

Objective:  4.6

 

78) A major disadvantage of the sole proprietorship is the

  1. A) ability to grow by adding talent.
  2. B) high start-up costs.
  3. C) unlimited liability.
  4. D) lack of freedom in making business decisions.
  5. E) difficulty in beginning business activities.

Answer:  C

Diff: 1     Type: MC     Page Ref: 88

Skill:  Comprehension

Objective:  4.6

 

79) A general partnership has advantages which are similar to a sole proprietorship, such as

  1. A) easy to transfer ownership.
  2. B) limiting owner’s liability.
  3. C) being simple to organize.
  4. D) providing for continuity.
  5. E) being dependent upon resources of an individual.

Answer:  C

Diff: 3     Type: MC     Page Ref: 88

Skill:  Comprehension

Objective:  4.6

 

80) A limited partnership attempts to

  1. A) avoid the problem of unlimited liability for the owners.
  2. B) limit the number of partners who may purchase a share of ownership.
  3. C) provide for continuity of operation upon the departure of one of the partners.
  4. D) limit the number of partners who may vote at board meetings.
  5. E) limit the geographical area of operation for a business firm.

Answer:  A

Diff: 2     Type: MC     Page Ref: 88

Skill:  Comprehension

Objective:  4.6

 

81) Partnerships are generally more advantageous than sole proprietorships because

  1. A) the talents of the partners can be pooled.
  2. B) some businesses can only be formed as partnerships.
  3. C) there are many types of partnerships.
  4. D) partners are jointly and severally liable.
  5. E) many people can be the president of the company.

Answer:  A

Diff: 2     Type: MC     Page Ref: 88

Skill:  Comprehension

Objective:  4.6

 

82) Which of the following statements about partnerships is false?

  1. A) A partner cannot sell their interest without the other partners’ consent.
  2. B) The partnership terminates upon the death of a partner.
  3. C) A partner cannot retire without the other partners’ consent.
  4. D) General partnerships are limited to ten partners.
  5. E) It is easier to borrow money than a sole proprietorship.

Answer:  D

Diff: 3     Type: MC     Page Ref: 88

Skill:  Comprehension

Objective:  4.6

 

83) If sole proprietor Tom decided to merge his business with that of Cindy, another sole proprietor, a ________ would result.

  1. A) partnership
  2. B) T-4A special corporation
  3. C) publicly-traded corporation
  4. D) dual proprietorship
  5. E) co-operative

Answer:  A

Diff: 1     Type: MC     Page Ref: 88

Skill:  Comprehension

Objective:  4.6

 

84) Low start-up costs and simplicity of operations are among the main advantages of

  1. A) a sole proprietorship.
  2. B) selling shares.
  3. C) incorporating.
  4. D) a co-operative.
  5. E) none of these.

Answer:  A

Diff: 2     Type: MC     Page Ref: 88

Skill:  Knowledge

Objective:  4.6

 

85) Many professional organizations, such as law firms and accounting firms, are formed as

  1. A) joint ventures.
  2. B) partnerships.
  3. C) public corporations.
  4. D) private corporations.
  5. E) sole proprietorships.

Answer:  B

Diff: 1     Type: MC     Page Ref: 88

Skill:  Knowledge

Objective:  4.6

 

86) The size of a partnership is

  1. A) limited to a maximum of $100 million in annual sales.
  2. B) unlimited.
  3. C) limited to a maximum of 100 partners.
  4. D) limited to a maximum of 1000 employees.
  5. E) limited to a maximum of $10 million in annual sales.

Answer:  B

Diff: 2     Type: MC     Page Ref: 88

Skill:  Comprehension

Objective:  4.6

 

87) Jeanne is not an active participant in Highline Food Company, but she has contributed a significant amount of capital as a partner to the business. Jeanne is known as a(n) ________ partner.

  1. A) managing
  2. B) general
  3. C) limited
  4. D) dormant
  5. E) secret

Answer:  C

Diff: 2     Type: MC     Page Ref: 88

Skill:  Comprehension

Objective:  4.6

 

88) There are two basic types of partners: ________ and ________.

  1. A) dormant; active
  2. B) key; secondary
  3. C) secret; open
  4. D) general; limited
  5. E) primary; secondary

Answer:  D

Diff: 2     Type: MC     Page Ref: 88

Skill:  Knowledge

Objective:  4.6

 

89) Paul invests $50 000 in a partnership with his sister to operate a computer sales outlet. Paul is not involved in the operation of the store and has limited liability through the written partnership agreement. What kind of partner is Paul?

  1. A) Secret
  2. B) Ostensible
  3. C) Limited
  4. D) Dormant
  5. E) General

Answer:  C

Diff: 1     Type: MC     Page Ref: 88

Skill:  Comprehension

Objective:  4.6

 

90) Two architects are considering forming a partnership. Both want a partnership agreement. All of the following should be part of their agreement except

  1. A) the formal reporting relationship between the two partners.
  2. B) the amount of the individual investment.
  3. C) how the company will be dissolved.
  4. D) how the profits will be shared.
  5. E) how new employees will be hired.

Answer:  E

Diff: 2     Type: MC     Page Ref: 88

Skill:  Comprehension

Objective:  4.6

 

91) Ann and David want to form a partnership. They should consider all of the following except

  1. A) possibility of disagreement.
  2. B) unlimited liability.
  3. C) ease of setting up a partnership.
  4. D) the combined talents of both partners.
  5. E) ease in transferring ownership.

Answer:  E

Diff: 2     Type: MC     Page Ref: 88

Skill:  Comprehension

Objective:  4.6

 

92) Disadvantages of the general partnership form of business organization include

  1. A) limited liability.
  2. B) ability to provide dividends to shareholders.
  3. C) lack of continuity.
  4. D) simplicity of establishment.
  5. E) difficult to organize.

Answer:  C

Diff: 2     Type: MC     Page Ref: 88

Skill:  Knowledge

Objective:  4.6

 

93) What is the most important advantage of general partnerships?

  1. A) The unlimited liability of the partnership
  2. B) The ability to grow with the addition of new talent and money
  3. C) The ease of implementing an effective control system
  4. D) The increased role of luck
  5. E) The need for minority partners

Answer:  B

Diff: 2     Type: MC     Page Ref: 88

Skill:  Knowledge

Objective:  4.6

 

94) What do both sole proprietorships and partnerships lack?

  1. A) Trust
  2. B) Legal standing
  3. C) Continuity
  4. D) Shared vision
  5. E) Adaptable processes

Answer:  C

Diff: 2     Type: MC     Page Ref: 88

Skill:  Knowledge

Objective:  4.6

 

95) In a partnership

  1. A) partners are not liable for debts of other partners if there is no partnership agreement.
  2. B) each partner pays only his or her share of the liability even if one partner runs out of money before that partner’s share is paid.
  3. C) a partner is not responsible for debts if another partner created the liability through some action that violated the partnership agreement.
  4. D) each partner is responsible for the debts even if the debt was the result of the actions of only one partner.
  5. E) each partner is responsible only for the debts he or she incurred.

Answer:  D

Diff: 3     Type: MC     Page Ref: 88

Skill:  Comprehension

Objective:  4.6

 

96) Computers-B-Us is a new company. Its owners all have no personal liability for any debts of the company. All five of its owners invested the same amount and will share equally in the profits. The structure of Computers-B-Us is most likely a

  1. A) private corporation.
  2. B) co-operative.
  3. C) limited partnership.
  4. D) general partnership.
  5. E) sole proprietorship.

Answer:  A

Diff: 3     Type: MC     Page Ref: 90

Skill:  Comprehension

Objective:  4.6

 

97) What is the fundamental difference between a sole proprietorship and a corporation?

  1. A) A corporation is larger than a sole proprietorship.
  2. B) A corporation is a legal entity that is separate from its owners, while in a sole proprietorship, there is no such distinction.
  3. C) A sole proprietor has unlimited liability, while investors in a corporation have limited liability.
  4. D) A corporation is more bureaucratic than a sole proprietorship.
  5. E) There isn’t really a fundamental difference between a sole proprietorship and a corporation.

Answer:  B

Diff: 3     Type: MC     Page Ref: 89

Skill:  Comprehension

Objective:  4.6

 

98) What was the largest corporation in Canada in 2014, as measured by sales revenue?

  1. A) Imperial Oil
  2. B) Manulife Financial Corp.
  3. C) Bank of Nova Scotia
  4. D) General Motors Canada
  5. E) Suncor Energy

Answer:  E

Diff: 3     Type: MC     Page Ref: 89

Skill:  Knowledge

Objective:  4.6

 

99) Which of the following is a private corporation?

  1. A) General Motors Canada
  2. B) Suncor Energy
  3. C) Cirque du Soleil
  4. D) Manulife Financial Corp.
  5. E) Bank of Nova Scotia

Answer:  C

Diff: 3     Type: MC     Page Ref: 90

Skill:  Knowledge

Objective:  4.6

100) A public corporation is

  1. A) one that must do business with the general public.
  2. B) chartered by the federal government.
  3. C) one whose stock is available for sale to the general public.
  4. D) one that cannot keep secrets from its competitors.
  5. E) one whose shares are for sale at public auctions.

Answer:  C

Diff: 2     Type: MC     Page Ref: 89

Skill:  Comprehension

Objective:  4.6

 

101) ________ is the governing body of a corporation.

  1. A) The board of directors
  2. B) The majority shareholders committee
  3. C) The audit committee
  4. D) The CEO
  5. E) A shareholders’ board

Answer:  A

Diff: 2     Type: MC     Page Ref: 89

Skill:  Knowledge

Objective:  4.6

 

102) The two most widely used methods to form a corporation include

  1. A) traditional or contemporary incorporation.
  2. B) limited or unlimited incorporation.
  3. C) private or public incorporation.
  4. D) inside or outside incorporation.
  5. E) federal or provincial incorporation.

Answer:  E

Diff: 2     Type: MC     Page Ref: 90

Skill:  Knowledge

Objective:  4.6

 

103) Bill is starting up a new business. In order to raise the capital needed for the business, Bill has sold shares of his company to a few close relatives. This type of structure is known as a

  1. A) sole proprietorship.
  2. B) private corporation.
  3. C) macroenterprise.
  4. D) public enterprise.
  5. E) public corporation.

Answer:  B

Diff: 1     Type: MC     Page Ref: 90

Skill:  Comprehension

Objective:  4.6

 

104) An organization designed to avoid paying corporate tax by distributing all or most of their earnings to their shareholders is

  1. A) an income trust.
  2. B) a shareholders co-operative.
  3. C) a public company.
  4. D) a limited partnership.
  5. E) a private corporation.

Answer:  A

Diff: 2     Type: MC     Page Ref: 90

Skill:  Comprehension

Objective:  4.6

 

105) An outside director is

  1. A) a person who is not an employee of the company.
  2. B) a person from the employee group outside the upper level ranks.
  3. C) a person selected by the CEO.
  4. D) a person who is a high ranking company official.
  5. E) a person from the audit committee.

Answer:  A

Diff: 2     Type: MC     Page Ref: 89

Skill:  Comprehension

Objective:  4.6

 

106) What is the difference between a public and private corporation?

  1. A) Public corporations issue shares, whereas private corporations do not.
  2. B) Public corporations are owned by a government, whereas private corporations are owned by private individuals.
  3. C) Public corporations are always large, whereas private corporations are not allowed by law to be large.
  4. D) Public corporations have articles of incorporation, whereas private corporations do not.
  5. E) Public corporations issue shares that are widely held, whereas private corporations issue shares that are held by only a few people.

Answer:  E

Diff: 2     Type: MC     Page Ref: 89-90

Skill:  Comprehension

Objective:  4.6

 

 

107) Shareholders are ________ of a company and profits are distributed among shareholders in the form of ________.

  1. A) owners; proxies
  2. B) owners; products
  3. C) managers; proxies
  4. D) owners; dividends
  5. E) managers; profit sharing

Answer:  D

Diff: 2     Type: MC     Page Ref: 89

Skill:  Knowledge

Objective:  4.6

108) Start-up costs and complexities are among the main disadvantages of

  1. A) starting up a partnership.
  2. B) incorporating.
  3. C) starting up a sole proprietorship.
  4. D) selling shares.
  5. E) none of these.

Answer:  B

Diff: 2     Type: MC     Page Ref: 90

Skill:  Comprehension

Objective:  4.6

 

109) For the first time, Liz has decided to sell shares of her company to the public in order to raise some capital to build a new factory. Liz is launching a(n)

  1. A) initial public offering.
  2. B) an extended corporation.
  3. C) blended corporation.
  4. D) private corporation.
  5. E) income tax trust.

Answer:  A

Diff: 2     Type: MC     Page Ref: 90

Skill:  Comprehension

Objective:  4.6

 

110) ________ is defined as “an artificial being, invisible, intangible, and existing only in contemplation of the law.”

  1. A) A corporation
  2. B) A co-operative
  3. C) A partnership
  4. D) A business owner
  5. E) A sole proprietorship

Answer:  A

Diff: 2     Type: MC     Page Ref: 89

Skill:  Knowledge

Objective:  4.6

 

 

111) Which type of business is legally considered a separate entity from its owners and is liable for its own debts?

  1. A) Sole proprietorship
  2. B) Corporation
  3. C) Limited partnership
  4. D) Co-operative
  5. E) General partnership

Answer:  B

Diff: 2     Type: MC     Page Ref: 89

Skill:  Knowledge

Objective:  4.6

112) A share of ownership in a corporation is referred to as

  1. A) a partnership.
  2. B) stock.
  3. C) a principle.
  4. D) a directorship.
  5. E) debt.

Answer:  B

Diff: 1     Type: MC     Page Ref: 89

Skill:  Knowledge

Objective:  4.6

 

113) Due to his hard work and notable contributions as an employee of KB Electronics, Nori has just been elected to the board of directors of the company. He will now be expected to fulfill his obligations as both an employee and director. Nori is a(n)

  1. A) outside director.
  2. B) special representative.
  3. C) regular seat holder.
  4. D) inside director.
  5. E) corporate official.

Answer:  D

Diff: 2     Type: MC     Page Ref: 89

Skill:  Comprehension

Objective:  4.6

 

114) Suzy is considering incorporating her financial consulting business. Of the items listed below, which one would not be a problem if she incorporates?

  1. A) Heavy regulation
  2. B) Double taxation
  3. C) Complex legal requirements
  4. D) Unlimited liability
  5. E) High costs of incorporation

Answer:  D

Diff: 2     Type: MC     Page Ref: 90

Skill:  Comprehension

Objective:  4.6

 

115) In the double taxation endured by some businesses, ________ is the first taxation and ________ is the second taxation.

  1. A) tax on corporate profits; value-added tax
  2. B) tax on dividends; tax on corporate profits
  3. C) tax on corporate profits; tax on dividends
  4. D) property tax; income tax
  5. E) social security tax; income tax

Answer:  C

Diff: 3     Type: MC     Page Ref: 90

Skill:  Comprehension

Objective:  4.6

116) What is “double taxation” in the context of a corporation?

  1. A) Consumers are taxed twice, once when they purchase products and once when they receive dividend cheques.
  2. B) The federal government taxes corporate earnings at twice the rate of earnings of sole proprietors.
  3. C) Gross earnings are taxed, then net earnings.
  4. D) A corporation must pay income taxes on its profits, and then shareholders must also pay personal income taxes on the dividends they receive from the corporation.
  5. E) None of these explain double taxation.

Answer:  D

Diff: 3     Type: MC     Page Ref: 90

Skill:  Comprehension

Objective:  4.6

 

117) Jonathan is upset, claiming that he is a victim of double taxation. What form of business is he involved in?

  1. A) Unlimited liability
  2. B) Partnership
  3. C) Corporation
  4. D) Big business venture
  5. E) Small corporate venture

Answer:  C

Diff: 1     Type: MC     Page Ref: 90

Skill:  Comprehension

Objective:  4.6

 

 

118) The person or people responsible for the firm’s overall performance is/are

  1. A) the directors.
  2. B) the CEO.
  3. C) the COO.
  4. D) the CFO.
  5. E) all employees.

Answer:  B

Diff: 1     Type: MC     Page Ref: 89

Skill:  Knowledge

Objective:  4.6

 

119) Most new corporations start out as ________ corporations and then move to ________ corporations as they grow.

  1. A) unlimited; limited
  2. B) limited; unlimited
  3. C) general, active
  4. D) public; private
  5. E) private; public

Answer:  E

Diff: 2     Type: MC     Page Ref: 90

Skill:  Knowledge

Objective:  4.6

120) Gloria wants to turn her sole proprietorship into a business corporation. Among the things that she must consider are

  1. A) sole proprietorships must be made into partnerships before they can be made into corporations.
  2. B) there is a threat of a hostile takeover if she has a private corporation.
  3. C) double taxation that occurs with corporations.
  4. D) the cost of dissolving her sole proprietorship will be high.
  5. E) she has to decide whether or not she will issue shares when the company becomes a corporation.

Answer:  C

Diff: 2     Type: MC     Page Ref: 90

Skill:  Comprehension

Objective:  4.6

 

121) Who are the owners of a corporation?

  1. A) The board of directors
  2. B) The financial officers
  3. C) The stockholders
  4. D) The top managers
  5. E) The creditors

Answer:  C

Diff: 2     Type: MC     Page Ref: 89

Skill:  Comprehension

Objective:  4.6

 

122) Which of the following is the main disadvantage of a co-operative?

  1. A) High prices
  2. B) Each member only gets one vote
  3. C) High tax rates
  4. D) Low surplus distribution rates
  5. E) Difficult to attract equity investment

Answer:  E

Diff: 2     Type: MC     Page Ref: 90

Skill:  Comprehension

Objective:  4.6

 

123) A ________ is an incorporated form of business that is organized, owned, and democratically controlled by the people who use its products and services.

  1. A) partnership
  2. B) proprietorship
  3. C) co-operative
  4. D) corporation
  5. E) preferred share

Answer:  C

Diff: 2     Type: MC     Page Ref: 90

Skill:  Knowledge

Objective:  4.6

124) How is a co-operative different from a corporation?

  1. A) A co-operative has no shareholders.
  2. B) A co-operate is smaller than a corporation.
  3. C) In a co-operative, each person has only one vote no matter how many shares they own.
  4. D) Double taxation affects co-operatives more negatively than corporations.
  5. E) A co-operative is not incorporated.

Answer:  C

Diff: 2     Type: MC     Page Ref: 90

Skill:  Comprehension

Objective:  4.6

 

 

125) Which of the following is correct with regard to co-operatives?

  1. A) Co-operatives are not allowed to deduct patronage refunds to members out of before-tax income.
  2. B) Members have an incentive to invest in equity capital of the co-operative.
  3. C) Voting and financial control of the co-operative is typically held by a few wealthy individuals.
  4. D) Double taxation affects co-operatives more negatively than corporations.
  5. E) The democratic voting arrangements and dividends based purely on patronage discourage some entrepreneurs from forming or joining a co-operative.

Answer:  E

Diff: 2     Type: MC     Page Ref: 90

Skill:  Comprehension

Objective:  4.6

 

126) The purpose of a co-operative is

  1. A) as a benevolent association designed to help out its members in times of need.
  2. B) as an association only for farmers.
  3. C) to benefit its owners in the form of reduced prices and/or distribution of surplus at year end.
  4. D) to remain small so that they can help all their members on an individual basis.
  5. E) to buy fertilizer at reduced prices because of volume buying on the part of its members.

Answer:  C

Diff: 1     Type: MC     Page Ref: 90

Skill:  Comprehension

Objective:  4.6

 

127) Voting rights in a co-operative are

  1. A) not restricted just to members.
  2. B) required before one can buy anything from a co-operative.
  3. C) the same as those found in a corporation, that is, the more one owns or contributes the more votes one has.
  4. D) nonexistent; there are no votes taken in the running of a co-operative.
  5. E) one vote per member regardless of the amount owned or contributed.

Answer:  E

Diff: 1     Type: MC     Page Ref: 90

Skill:  Comprehension

Objective:  4.6

 

4.2   Critical Thinking Questions

 

1) An entrepreneur, Christina Rossini, is planning to open a small chain of 4 to 6 pizza stores under the brand name “Redenda Pizza.” The name comes from combining the first names of the entrepreneur’s grandparents. Christina wants to have a competitive advantage by offering innovative and distinct specialty pizzas and by offering the freshest ingredients. However, she is concerned that without proper planning, her venture will not be successful.

 

Christina is trying to identify potential problems in order to avoid them or at least be better positioned to react if they cannot be avoided. In doing so, Christina should account for all of the following possibilities except

  1. A) the possibility that years in the future scientists may give a new communicable disease a name that sounds similar to “Redenda.”
  2. B) the possibility that a significant number of her potential customers could be allergic to one or more of her ingredients.
  3. C) the possibility that seasonal variations in the availability of ingredients could affect the price of those ingredients.
  4. D) the possibility that advertising “fresh” ingredients may prevent Redenda Pizza from using less-expensive ingredients.
  5. E) the possibility that many customers are reluctant to try new pizza recipes.

Answer:  A

Diff: 3     Type: MC

Skill:  Analysis

 

2) An entrepreneur, Christina Rossini, is planning to open a small chain of 4 to 6 pizza stores under the brand name “Redenda Pizza.” The name comes from combining the first names of the entrepreneur’s grandparents. Christina wants to have a competitive advantage by offering innovative and distinct specialty pizzas and by offering the freshest ingredients. However, she is concerned that without proper planning, her venture will not be successful.

 

Answers to which of the following questions would be least relevant to determining whether Christina has located a good opportunity in starting Redenda Pizza?

  1. A) Are there other pizza restaurants in the immediate vicinity of the planned location?
  2. B) Is the business of other pizza restaurants in the city growing?
  3. C) Does the planned location of the restaurant have competitive rent?
  4. D) Will Redenda Pizza offer unique ingredients in its food offerings?
  5. E) Would Christina bring unique talents and ideas to a restaurant business?

Answer:  C

Diff: 3     Type: MC

Skill:  Analysis

 

3) An entrepreneur, Christina Rossini, is planning to open a small chain of 4 to 6 pizza stores under the brand name “Redenda Pizza.” The name comes from combining the first names of the entrepreneur’s grandparents. Christina wants to have a competitive advantage by offering innovative and distinct specialty pizzas and by offering the freshest ingredients. However, she is concerned that without proper planning, her venture will not be successful.

 

Which of the following, if true, would strengthen the case that Christina has a good opportunity in opening a new pizza restaurant?

  1. A) There are many existing pizza restaurants in Christina’s city.
  2. B) The pizza business in Christina’s city has remained largely unchanged for many years.
  3. C) Restaurant consumers in Christina’s city mostly frequent Mexican restaurants.
  4. D) Pizza restaurants require several experienced employees to be successful.
  5. E) Pizza restaurants can be found in almost any town in the United States.

Answer:  B

Diff: 3     Type: MC

Skill:  Analysis

 

4) An entrepreneur, Christina Rossini, is planning to open a small chain of 4 to 6 pizza stores under the brand name “Redenda Pizza.” The name comes from combining the first names of the entrepreneur’s grandparents. Christina wants to have a competitive advantage by offering innovative and distinct specialty pizzas and by offering the freshest ingredients. However, she is concerned that without proper planning, her venture will not be successful.

 

Which of the following, if true, would not strengthen the case that Christina has personal characteristics necessary for her new business to succeed?

  1. A) She is willing to take risks.
  2. B) She is motivated.
  3. C) She works well with others.
  4. D) She is a “big picture” thinker.
  5. E) She follows directions carefully.

Answer:  E

Diff: 3     Type: MC

Skill:  Analysis

 

 

5) An entrepreneur, Christina Rossini, is planning to open a small chain of 4 to 6 pizza stores under the brand name “Redenda Pizza.” The name comes from combining the first names of the entrepreneur’s grandparents. Christina wants to have a competitive advantage by offering innovative and distinct specialty pizzas and by offering the freshest ingredients. However, she is concerned that without proper planning, her venture will not be successful.

 

Which of the following best explains why flexibility is an important quality that Christina needs for success?

  1. A) It takes a certain amount of money to start a business.
  2. B) It often helps to have a business partner in a new business.
  3. C) Starting a new business requires a great deal of planning.
  4. D) Starting and running a new business involves many unpredictable factors.
  5. E) An entrepreneur must be extremely competent in business skills.

Answer:  D

Diff: 3     Type: MC

Skill:  Analysis

6) Short and Shearer are two friends who want to begin an entrepreneurship as business partners. They need to decide whether to start up a new business or to buy an existing business. To do this, Short and Shearer need to weigh the pros and cons of each in order to see what the best strategy for them would be.

 

Which of the following, if true, would strengthen the case for Short and Shearer buying an existing business?

  1. A) Short and Shearer have a lot of ideas as to the kind of business they would like to own.
  2. B) An existing business would have an existing customer base that Short and Shearer would inherit.
  3. C) An existing business for sale might have difficulties that Short and Shearer would inherit.
  4. D) Short and Shearer greatly value independence.
  5. E) Existing small businesses are usually carrying debts.

Answer:  B

Diff: 3     Type: MC

Skill:  Analysis

 

 

7) Short and Shearer are two friends who want to begin an entrepreneurship as business partners. They need to decide whether to start up a new business or to buy an existing business. To do this, Short and Shearer need to weigh the pros and cons of each in order to see what the best strategy for them would be.

 

Which of the following, if true, would weaken the case for Short and Shearer buying an existing business?

  1. A) Short and Shearer could more easily obtain financing for the purchase.
  2. B) Buying an existing business involves fewer legal hurdles than starting a new one.
  3. C) Franchises have more potential for success than single-facility businesses.
  4. D) Short and Shearer have limited funds to start with.
  5. E) Existing businesses cost less to purchase than new ones.

Answer:  D

Diff: 3     Type: MC

Skill:  Analysis

 

8) Short and Shearer are two friends who want to begin an entrepreneurship as business partners. They need to decide whether to start up a new business or to buy an existing business. To do this, Short and Shearer need to weigh the pros and cons of each in order to see what the best strategy for them would be.

 

Which of the following, if true, would strengthen the case for Short and Shearer’s starting a new business of their own?

  1. A) Starting a new business would put a lot of demands on their time.
  2. B) Starting a new business involves more risk than purchasing an existing one.
  3. C) Starting a new business would give them a lot of freedom and independence.
  4. D) Starting a new business would mean hiring many new employees right away.
  5. E) Starting a new business involves a lot of stress for the proprietors.

Answer:  C

Diff: 3     Type: MC

Skill:  Analysis

9) Short and Shearer are two friends who want to begin an entrepreneurship as business partners. They need to decide whether to start up a new business or to buy an existing business. To do this, Short and Shearer need to weigh the pros and cons of each in order to see what the best strategy for them would be.

 

Which of the following, if true, would weaken the case for Short and Shearer’s starting a new business?

  1. A) Starting a new business allows an entrepreneur to determine their own working hours.
  2. B) Starting a new business allows an entrepreneur to establish their own clientele.
  3. C) Starting a new business allows an entrepreneur to use their own ideas.
  4. D) Starting a new business gives a potential for a feeling of great accomplishment.
  5. E) Starting a new business involves using an untested business model.

Answer:  E

Diff: 3     Type: MC

Skill:  Analysis

 

10) Short and Shearer are two friends who want to begin an entrepreneurship as business partners. They need to decide whether to start up a new business or to buy an existing business. To do this, Short and Shearer need to weigh the pros and cons of each in order to see what the best strategy for them would be.

 

In order to help ensure success for their new business, which of the following questions would be least helpful for Short and Shearer to periodically ask themselves?

  1. A) How well does our firm’s operation align with the business plan?
  2. B) How many employees do we have?
  3. C) How are we handling our finances?
  4. D) How are our employees performing?
  5. E) How much debt can we afford to carry?

Answer:  B

Diff: 3     Type: MC

Skill:  Analysis

 

11) Sam and Nina want to start a dry-cleaning service and need to decide on the best form of business ownership, based on their respective abilities and the kind of business they want to run. They could either jointly own the business as a partnership, or one of them could own it as a sole proprietorship.

 

Which of the following, if true, would strengthen the case for Nina running the business as a sole proprietorship?

  1. A) Sam is experienced in dry-cleaning.
  2. B) Sam has a wide base of existing customer contacts.
  3. C) Sam is not willing to take on legal liability in the company.
  4. D) Nina is relatively new to the dry-cleaning business.
  5. E) Nina is not much of a “people person.”

Answer:  C

Diff: 3     Type: MC

Skill:  Analysis

 

12) Sam and Nina want to start a dry-cleaning service and need to decide on the best form of business ownership, based on their respective abilities and the kind of business they want to run. They could either jointly own the business as a partnership, or one of them could own it as a sole proprietorship.

 

Which of the following, if true, would weaken the case for Nina running the business as a sole proprietorship?

  1. A) Nina has a degree in accounting.
  2. B) Nina’s parents also ran a dry-cleaning business.
  3. C) Nina had the initial idea to start the new business.
  4. D) Sam is anxious to take on a lead role in the business.
  5. E) Sam does not have any previous dry-cleaning experience.

Answer:  D

Diff: 3     Type: MC

Skill:  Analysis

 

13) Sam and Nina want to start a dry-cleaning service and need to decide on the best form of business ownership, based on their respective abilities and the kind of business they want to run. They could either jointly own the business as a partnership, or one of them could own it as a sole proprietorship.

 

Which of the following, if true, would strengthen the case for Sam and Nina owning the business in a partnership?

  1. A) Sam and Nina have very different personalities.
  2. B) Sam and Nina have the same skill sets.
  3. C) Sam and Nina are both motivated and energetic.
  4. D) Nina has good leadership qualities.
  5. E) Sam has a strong marketing background.

Answer:  C

Diff: 3     Type: MC

Skill:  Analysis

 

 

14) Sam and Nina want to start a dry-cleaning service and need to decide on the best form of business ownership, based on their respective abilities and the kind of business they want to run. They could either jointly own the business as a partnership, or one of them could own it as a sole proprietorship.

 

Which of the following, if true, would weaken the case for Sam and Nina owning the business in a partnership?

  1. A) Sam and Nina have different personalities.
  2. B) Sam and Nina have known each other for many years.
  3. C) Sam and Nina have conflicting ideas about what would make a dry-cleaning business succeed.
  4. D) Nina is experienced in finance but not in equipment repair.
  5. E) Sam is experienced in dry-cleaning but not skilled as an administrator.

Answer:  C

Diff: 3     Type: MC

Skill:  Analysis

15) Three friends in the United States want to start a warehousing and distribution business. They each want to be co-owners of the new business with a stake in its profits. The new business will therefore be a corporation, but they need to determine which kind of corporation it should be so that it will best fit their interests in the business.

 

Which of the following, if true about the owners’ plan for the new business, would strengthen the case that it should be registered as an S corporation? (Note: An S corporation in the United States is a hybrid of a private corporation and a partnership. It is organized and operates like a corporation, but it is treated like a partnership for tax purposes. To qualify, firms must meet stringent legal conditions.)

  1. A) They want their shareholders to be personally liable for the corporation’s debts.
  2. B) They want to have an unlimited number of shareholders.
  3. C) They do not want the company to have to pay corporate income taxes.
  4. D) They do not want to have to meet any start-up requirements.
  5. E) They don’t want to have a board of directors.

Answer:  C

Diff: 3     Type: MC

Skill:  Analysis

 

4.3   True/False Questions

 

1) Self-employed Canadians account for about half of the total workforce.

Answer:  FALSE

Diff: 1     Type: TF     Page Ref: 75

Skill:  Knowledge

Objective:  4.1

 

 

2) Entrepreneurship is an individual’s willingness to take advantage of business opportunities and to assume the risks of establishing and operating a business.

Answer:  TRUE

Diff: 1     Type: TF     Page Ref: 76

Skill:  Comprehension

Objective:  4.1

 

3) A small business is, by definition, entrepreneurial.

Answer:  FALSE

Diff: 1     Type: TF     Page Ref: 75

Skill:  Comprehension

Objective:  4.1

 

4) A small business is an owner-managed business with less than 100 employees.

Answer:  TRUE

Diff: 1     Type: TF     Page Ref: 75

Skill:  Knowledge

Objective:  4.1

 

5) A new venture is a recently formed commercial organization that provides goods, but not services, for sale.

Answer:  FALSE

Diff: 2     Type: TF     Page Ref: 76

Skill:  Knowledge

Objective:  4.1

6) The majority of businesses in Canada have no employees (i.e., the only person is the business is the owner).

Answer:  TRUE

Diff: 2     Type: TF     Page Ref: 75

Skill:  Knowledge

Objective:  4.1

 

7) In the 2015 Heritage Foundation index of economic freedom, Hong Kong ranked highest and North Korea ranked lowest.

Answer:  TRUE

Diff: 3     Type: TF     Page Ref: 76

Skill:  Knowledge

Objective:  4.1

 

8) A key difference between intrapreneurs and entrepreneurs is that intrapreneurs typically don’t have to concern themselves with getting the resources needed to bring a new product to market.

Answer:  TRUE

Diff: 2     Type: TF     Page Ref: 76

Skill:  Comprehension

Objective:  4.1

 

 

9) About 85 percent of all businesses in Canada are small.

Answer:  FALSE

Diff: 2     Type: TF     Page Ref: 77

Skill:  Comprehension

Objective:  4.2

 

10) Manufacturing businesses are the largest and fastest growing segment of small business enterprise.

Answer:  FALSE

Diff: 1     Type: TF     Page Ref: 77

Skill:  Knowledge

Objective:  4.2

 

11) During the period from 2002 to 2012, small businesses created about three-quarters of all the jobs in Canada.

Answer:  TRUE

Diff: 1     Type: TF     Page Ref: 77

Skill:  Knowledge

Objective:  4.2

 

12) Women lead only a small percentage of small- and medium-sized firms that export goods and services.

Answer:  TRUE

Diff: 2     Type: TF     Page Ref: 77

Skill:  Knowledge

Objective:  4.2

13) The most important reason that women give for starting their own business is to gain control of their schedules.

Answer:  TRUE

Diff: 2     Type: TF     Page Ref: 77

Skill:  Knowledge

Objective:  4.2

 

14) Most new ventures are the result of a search for a viable business idea.

Answer:  FALSE

Diff: 1     Type: TF     Page Ref: 78

Skill:  Knowledge

Objective:  4.3

 

15) Most new venture ideas come from peoples’ hobbies.

Answer:  FALSE

Diff: 2     Type: TF     Page Ref: 79

Skill:  Knowledge

Objective:  4.3

 

 

16) An idea with high business exit costs is good, because it will motivate the entrepreneur to work hard to achieve success.

Answer:  FALSE

Diff: 2     Type: TF     Page Ref: 80

Skill:  Comprehension

Objective:  4.3

 

17) If market conditions are stable, the benefits gained from research diminish quickly.

Answer:  FALSE

Diff: 2     Type: TF     Page Ref: 81

Skill:  Comprehension

Objective:  4.3

 

18) A sales forecast is the foundation for determining the financial viability of a venture and the resources needed to start it.

Answer:  TRUE

Diff: 2     Type: TF     Page Ref: 80

Skill:  Comprehension

Objective:  4.3

 

19) Planning does not have to be complete before action is taken.

Answer:  TRUE

Diff: 2     Type: TF     Page Ref: 81

Skill:  Comprehension

Objective:  4.3

 

20) Equity refers to the money, or capital, invested in the enterprise by individuals in return for an ownership interest.

Answer:  TRUE

Diff: 2     Type: TF     Page Ref: 82

Skill:  Knowledge

Objective:  4.3

21) A business is at its riskiest point during the start-up phase.

Answer:  TRUE

Diff: 2     Type: TF     Page Ref: 82

Skill:  Knowledge

Objective:  4.3

 

22) Private investors, also known as angels, provide most of the debt financing for new businesses.

Answer:  FALSE

Diff: 2     Type: TF     Page Ref: 82

Skill:  Comprehension

Objective:  4.3

 

 

23) Suppliers who provide goods such as inventory are providing equity financing.

Answer:  FALSE

Diff: 2     Type: TF     Page Ref: 82

Skill:  Comprehension

Objective:  4.3

 

24) Survival rates for new ventures are greatly improved by getting involved with an incubator.

Answer:  TRUE

Diff: 2     Type: TF     Page Ref: 83

Skill:  Comprehension

Objective:  4.3

 

25) Small founding teams tend to work better than big ones when starting a company, and it is quite common for the initial team to consist of just two people: a craftsperson and a salesperson.

Answer:  TRUE

Diff: 2     Type: TF     Page Ref: 84

Skill:  Knowledge

Objective:  4.3

 

26) It is important to assess the “fit” between the various elements in the entrepreneurial process at the outset and then stick with that setup as the business grows.

Answer:  FALSE

Diff: 2     Type: TF     Page Ref: 84

Skill:  Comprehension

Objective:  4.3

 

27) The risks of buying an existing firm are greater than the risks of starting a business from scratch because the existing firm may have a bad reputation among consumers.

Answer:  FALSE

Diff: 1     Type: TF     Page Ref: 85

Skill:  Comprehension

Objective:  4.4

 

28) Two of the major problems in family businesses are choosing and training successors and determining the direction of the firm.

Answer:  TRUE

Diff: 1     Type: TF     Page Ref: 85

Skill:  Comprehension

Objective:  4.4

29) The franchise agreement usually requires that the franchisee pay a fee to the franchisor, but sometimes the franchisor is willing to pay the franchisee if the franchisee has a good track record of success.

Answer:  FALSE

Diff: 2     Type: TF     Page Ref: 86

Skill:  Comprehension

Objective:  4.4

 

30) A significant advantage of a franchise as a way of running a small business is that the chances of success are enhanced.

Answer:  TRUE

Diff: 1     Type: TF     Page Ref: 86

Skill:  Comprehension

Objective:  4.4

 

31) A disadvantage of a franchise is the initial franchise fee.

Answer:  TRUE

Diff: 2     Type: TF     Page Ref: 86

Skill:  Comprehension

Objective:  4.4

 

32) Luck is a significant factor in the success of some small businesses.

Answer:  TRUE

Diff: 1     Type: TF     Page Ref: 87

Skill:  Knowledge

Objective:  4.5

 

33) A study conducted by CIBC found that small businesses with above-average growth rates were run by owners with more formal education.

Answer:  TRUE

Diff: 2     Type: TF     Page Ref: 87

Skill:  Knowledge

Objective:  4.5

 

34) Of every 100 small businesses that begin operation, only 85 will still be operating after just one year.

Answer:  TRUE

Diff: 2     Type: TF     Page Ref: 87

Skill:  Knowledge

Objective:  4.5

 

35) Sole proprietors can generally treat business revenues and operating expenses as part of their personal finances.

Answer:  TRUE

Diff: 1     Type: TF     Page Ref: 89

Skill:  Comprehension

Objective:  4.6

 

36) Shares of stock in a private corporation are available for sale to the general public.

Answer:  FALSE

Diff: 1     Type: TF     Page Ref: 90

Skill:  Knowledge

Objective:  4.6

 

 

37) An income trust structure allows a corporation to avoid paying tax if it distributes all or most of its earnings to investors.

Answer:  TRUE

Diff: 2     Type: TF     Page Ref: 90

Skill:  Knowledge

Objective:  4.6

 

38) Company employees are not allowed to be members of the board of directors.

Answer:  FALSE

Diff: 2     Type: TF     Page Ref: 89

Skill:  Knowledge

Objective:  4.6

 

39) IPOs are particularly attractive to companies during stock market declines because investors can buy the shares of stock for a low price, and this makes it more likely that the company will be able to sell a lot of shares.

Answer:  FALSE

Diff: 2     Type: TF     Page Ref: 90

Skill:  Comprehension

Objective:  4.6

 

40) In a corporation, a shareholder with 10 shares receives 10 times the dividend paid to a shareholder with 1 share.

Answer:  TRUE

Diff: 2     Type: TF     Page Ref: 89

Skill:  Comprehension

Objective:  4.6

 

41) Shareholders pay income taxes on the dividends they receive from the corporation, but the dividends are tax deductible for corporations.

Answer:  FALSE

Diff: 2     Type: TF     Page Ref: 90

Skill:  Comprehension

Objective:  4.6

 

42) Unlike corporations, co-operatives do not have directors and appointed officers.

Answer:  FALSE

Diff: 2     Type: TF     Page Ref: 90

Skill:  Comprehension

Objective:  4.6

 

43) Co-operatives are allowed to deduct patronage refunds to members out of before-tax income.

Answer:  TRUE

Diff: 2     Type: TF     Page Ref: 90

Skill:  Comprehension

Objective:  4.6

 

 

44) A co-operative is an incorporated form of business.

Answer:  TRUE

Diff: 1     Type: TF     Page Ref: 90

Skill:  Knowledge

Objective:  4.6

4.4   Short Answer Questions

 

1) How is a small business defined?

Answer:  A small business is an independently owned and managed business with less than 100 employees.

Diff: 2     Type: SA     Page Ref: 75

Skill:  Knowledge

Objective:  4.1

 

2) What is an entrepreneur?

Answer:  An entrepreneur is a business person who accepts both the risks and the opportunities involved in creating and operating a new business venture.

Diff: 2     Type: SA     Page Ref: 76

Skill:  Knowledge

Objective:  4.1

 

3) What is an intrapreneur?

Answer:  An intrapreneur is a person who creates something new within an existing large firm or organization.

Diff: 1     Type: SA     Page Ref: 76

Skill:  Knowledge

Objective:  4.1

 

4) Define a new venture.

Answer:  A new venture is a recently formed new commercial organization that provides goods and/or services for sale.

Diff: 1     Type: SA     Page Ref: 76

Skill:  Knowledge

Objective:  4.1

 

5) What is the impact of new ventures on job creation?

Answer:  New firms are the main source of job creation, and they are responsible for the vast majority of new products and services that are developed. From 2002 to 2012, small businesses created 77 percent of all the jobs in Canada.

Diff: 1     Type: SA     Page Ref: 77

Skill:  Comprehension

Objective:  4.2

 

 

6) What are the main reasons that female entrepreneurs give for starting a business?

Answer:  Gaining control over their schedule, seeing a market opportunity, and being frustrated by the “glass ceiling” at big companies

Diff: 1     Type: SA     Page Ref: 77

Skill:  Knowledge

Objective:  4.2

7) List the major parts of a good business plan.

Answer:

– Company description

– Product or service description

– Marketing analysis and plan

– Operating plan

– Management plan

– Financial plan

– Supporting details

Diff: 1     Type: SA     Page Ref: 81

Skill:  Knowledge

Objective:  4.3

 

8) What are the three key elements in the entrepreneurial process?

Answer:  The three key elements are the entrepreneur, the opportunity, and the resources.

Diff: 1     Type: SA     Page Ref: 78

Skill:  Knowledge

Objective:  4.3

 

9) What factors in the broader environment influence the entrepreneurial process?

Answer:

– Social factors

– Economic factors

– Political factors

– Technological factors

Diff: 2     Type: SA     Page Ref: 78

Skill:  Knowledge

Objective:  4.3

 

10) Where do the majority of entrepreneurial ideas come from?

Answer:  They come from everyday events relating to work or life, with work experience begin the most common source.

Diff: 2     Type: SA     Page Ref: 78

Skill:  Knowledge

Objective:  4.3

 

 

11) What are the two most important questions to ask when evaluating an idea for market and financial viability?

Answer:

– Are there enough customers willing to buy the product or service?

– Will sales lead to profits?

Diff: 2     Type: SA     Page Ref: 80

Skill:  Comprehension

Objective:  4.3

 

12) What is a sales forecast?

Answer:  A sales forecast is an estimate of how much of a service/product will be purchased during a specific period of time.

Diff: 1     Type: SA     Page Ref: 80

Skill:  Comprehension

Objective:  4.3

13) What is the mandate of the Business Development Bank of Canada?

Answer:  The mandate of the Business Development Bank of Canada (BDC) is to help develop Canadian businesses, particularly small- and medium-sized companies. It provides financing, venture capital, and consulting strategies.

Diff: 1     Type: SA     Page Ref: 83

Skill:  Comprehension

Objective:  4.3

 

14) What is a business incubator?

Answer:  A business incubator provides new businesses with support to help nurture them into a successful future. The type of support varies but some key forms of assistance include consulting services, legal advice, accounting services, business contacts, clerical services, and office space.

Diff: 1     Type: SA     Page Ref: 83

Skill:  Comprehension

Objective:  4.3

 

15) How has the Internet affected small business start-ups in recent years?

Answer:  Entrepreneurs can create and expand new businesses faster and more easily than ever before because the Internet provides fundamentally new ways of doing business. The Internet also helps entrepreneurs to gather information, to write a business plan and to access government grants.

Diff: 1     Type: SA     Page Ref: 83

Skill:  Comprehension

Objective:  4.3

 

16) What are the three basic strategies for becoming a business owner?

Answer:  The three basic strategies are starting a new business from scratch, buying an existing business, or buying a franchise.

Diff: 2     Type: SA     Page Ref: 85

Skill:  Comprehension

Objective:  4.4

 

17) What is the most important factor contributing to small business failure?

Answer:  The most important factor is managerial incompetence.

Diff: 2     Type: SA     Page Ref: 87

Skill:  Comprehension

Objective:  4.5

 

18) What is a general partnership?

Answer:  A general partnership is one in which all partners are jointly liable for the debts of the business. There is no legal limit to the number of parties who may form a general partnership. Partners may invest equal or unequal sums of money and may earn profits that bear no relation to their investments.

Diff: 2     Type: SA     Page Ref: 88

Skill:  Comprehension

Objective:  4.6

19) What are the two most widely used methods to form a corporation?

Answer:  The two most widely used methods are federal incorporation under the Canada Business Corporations Act, and provincial incorporation under any of the provincial corporations acts.

Diff: 2     Type: SA     Page Ref: 90

Skill:  Knowledge

Objective:  4.6

 

20) Describe the role and responsibilities of the board of directors.

Answer:

– Oversee the corporation’s operation

– Select the president and other officers to run the day to day operations

– Set dividend policy

– Set policies on major spending and executive salaries and benefits

Diff: 2     Type: SA     Page Ref: 89

Skill:  Comprehension

Objective:  4.6

 

21) What does it mean to say that shareholders in a corporation have limited liability?

Answer:  The amount of money that shareholders can lose is limited to the amount of their initial investment.

Diff: 2     Type: SA     Page Ref: 90

Skill:  Comprehension

Objective:  4.6

 

22) What is a private corporation?

Answer:  A private corporation is one in which the shares of stock are held by only a few people and are not available for sale to the public.

Diff: 2     Type: SA     Page Ref: 90

Skill:  Comprehension

Objective:  4.6

 

 

23) What is a co-operative?

Answer:  A co-operative is an incorporated form of business that is organized, owned, and democratically controlled by the people who use its products and services. Co-operatives are formed to benefit owners in the form of reduced prices or the distribution of surpluses at year-end.

Diff: 2     Type: SA     Page Ref: 90

Skill:  Comprehension

Objective:  4.6

4.5   Essay Questions

 

1) What are some of the difficulties involved in defining what a small business is?

Answer:  Various measures might be used, including the number of people the business employs, the company’s sales revenue, the size of the investment required, or the type of ownership structure the business has. The government relies on two different sources for information about small business, and the relationship between these two sources is often not clear. For example, Industry Canada reports that there are 2.2 million business establishments in Canada and about 2.6 million people who are self-employed, but there is no way of knowing how much overlap there is between these two categories. In order to simplify things, a small business is defined as one which is owner-managed and which has less than 100 employees.

Diff: 2     Type: ES     Page Ref: 75

Skill:  Comprehension

Objective:  4.1

 

2) The Miller brothers (Jack, Bill, and Evan) are about to fulfill a lifelong dream. They are buying a thousand-acre farm and plan to grow corn. They are not interested in bringing in any outside owners. The brothers are realistic and expect to work very long hours. However, they have a few critical decisions left to make. Should the Miller brothers’ farm be considered a small business?

Answer:  The Miller brothers’ farm should be considered a small business. A small business is independently owned and managed. It cannot be a part of another business and must have little influence in its market. A family farm would definitely meet these standards. As there are many farms growing corn in Canada, the Miller brothers’ farm will have little to no influence in the market for corn.

Diff: 2     Type: ES     Page Ref: 75

Skill:  Comprehension

Objective:  4.1

 

3) Describe some key characteristics of small business in Canada.

Answer:  Small businesses constitute about 98 percent of all businesses in Canada. About half of all employed Canadians work in a small business, and small businesses are the main source of job creation. Small businesses are also responsible for the vast majority of new product ideas.

Diff: 2     Type: ES     Page Ref: 77

Skill:  Comprehension

Objective:  4.2

 

 

 

4) How is the Canadian economy affected by small businesses?

Answer:  Small businesses affect the Canadian economy through job creation and innovation, and by making products for and selling products made by big businesses. Small businesses are an important source of new jobs in Canada. Innovations are as likely to come from small businesses as big businesses. Finally, most of the products made by big businesses are sold to consumers by small businesses. Big businesses often depend on small businesses as suppliers as well. By creating jobs, fostering innovation, and providing goods and services, small businesses have a positive effect on the economy.

Diff: 2     Type: ES     Page Ref: 77

Skill:  Comprehension

Objective:  4.2

5) Describe the criteria used to screen an entrepreneur’s idea.

Answer:  There are five criteria: (1) Does this idea for a product or services create or add value for the customers? (2) Does this idea provide a sustainable competitive advantage? (3) Is this idea marketable? (4) Is the idea financially viable? and (5) Does the idea have low exit costs?

Diff: 2     Type: ES     Page Ref: 79

Skill:  Comprehension

Objective:  4.3

 

6) Why might an entrepreneur wish to purchase an existing business rather than starting one from scratch?

Answer:  An entrepreneur may wish to purchase an existing business because of an increased chance for success. An existing business will have established working relationships with lenders, suppliers, and the community. The track record of an existing business gives potential buyers a much clearer picture of what to expect than any estimate of a new business’ prospects.

Diff: 3     Type: ES

Skill:  Comprehension

Objective:  4.3

 

7) What characteristics do entrepreneurs typically exhibit? How important are these characteristics?

Answer:  Research shows that entrepreneurial characteristics are wide-ranging. Some are behavioural (e.g., taking initiative), others are personality traits (e.g., independence), and still others are skills (e.g., problem-solving). Some people think that entrepreneurs are rare; however, entrepreneurial characteristics have been found to be widely distributed in the population. We also know that personal characteristics often have less impact on a person’s action than the situation a person is in. What is really important is not who the person is but what the person does.

Diff: 2     Type: ES     Page Ref: 78

Skill:  Comprehension

Objective:  4.3

 

 

8) Why is it important to have a business plan?

Answer:

– To help organize and act as a road map through the various stages of development

– Requires the entrepreneur to document and explain why this is an opportunity

– To indicate as many variables as possible for possible weaknesses or strengths in each of the functional areas: marketing, finance, and operations

– To show conceptually the owner/operator how the business should come together and whether he/she will need help

Diff: 3     Type: ES     Page Ref: 81

Skill:  Comprehension

Objective:  4.3

9) The Miller brothers (Jack, Bill, and Evan) are about to fulfill a lifelong dream. They are buying a thousand-acre farm and plan to grow corn. They are not interested in bringing in any outside owners. The brothers are realistic and expect to work very long hours. However, they have a few critical decisions left to make. Should the Miller brothers develop a business plan? Why or why not?

Answer:  A business plan would help the brothers develop and describe their business strategy and demonstrate how it will be implemented. It would also describe the abilities and experiences each of the brothers can contribute to running the farm. Three different people probably have three different areas of expertise. The business plan would also define legal elements, describe how the business will be organized, and address accounting and finance issues. It would specifically address what the three men’s goals and objectives are, what strategies they will use to attain these, and how the strategies will be implemented.

Diff: 3     Type: ES     Page Ref: 81

Skill:  Comprehension

Objective:  4.3

 

10) What issues should an entrepreneur consider when deciding whether to share ownership by forming a venture team?

Answer:  The two issues are (1) the size and scope of the venture (the number of people the venture requires, and the feasibility of hiring people to fill the key roles), and (2) personal competencies (the talents, skills, track record, contacts, and resources that are needed for the venture to succeed). The nature of the team depends upon the match between the lead entrepreneur and the opportunity and how quickly and aggressively he or she plans to proceed.

Diff: 2     Type: ES     Page Ref: 84

Skill:  Comprehension

Objective:  4.3

 

 

11) Should government be involved in giving assistance to small businesses?

Answer:  Answers will vary. An example of a “Yes” answer is:

– Due to the tremendous impact of small business on the Canadian economy

– Significant contributor to development of new products

– Small businesses are net creators of new jobs

– Ensures competition

– Assistance is needed to help overcome the difficulties of starting

Diff: 2     Type: ES

Skill:  Analysis

Objective:  4.3

12) What are the two key activities that entrepreneurs must complete when starting a new business? Explain what is involved in each of these activities.

Answer:  The two key activities are (1) identifying an opportunity and (2) accessing resources. With regard to (1), identifying opportunities involves first generating ideas for new or improved products, processes, or services. Most new ventures originate from events relating to work or everyday life. Next, the ideas must be screened. When screening ideas, the entrepreneur should ask several questions, including: Does the idea create or add value for the customer? Does the idea provide a competitive advantage that can be sustained? Is the idea marketable and financially viable? and Does the idea have low exit costs? Finally, the best idea(s) need to be developed. New ventures use one or more of three main entry strategies: they introduce a totally new product or service; they introduce a product or service that will compete directly with existing competitive offerings but adds a new twist (customization of the standard product); or they franchise. With regard to (2), an important activity is the acquisition of the finances that will be necessary for the success of the business. This involves consideration of the two main types of financing–debt and equity. Since a business is at its riskiest point during the start-up phase, equity is usually more appropriate and accessible than debt. However, most new venture founders prefer debt because they are reluctant to give up any control to outsiders.

Diff: 2     Type: ES     Page Ref: 78-80

Skill:  Comprehension

Objective:  4.3

 

13) Describe the business plan and the start-up decisions made by small businesses.

Answer:  The starting point for virtually every new business is a business plan, in which the entrepreneur summarizes business strategy for the new venture and shows how it will be implemented. Entrepreneurs must also decide whether to buy an existing business, operate a franchise, or start from scratch. Further, common funding sources include personal funds, family and friends, savings, lenders, investors, and government agencies. Venture capital companies are groups of small investors seeking to make a profit on companies with rapid growth potential. Angels are private investors who make money available to new ventures in return for a share of the business. Most of these firms and individuals do not lend money but rather invest it, supplying capital in return for partial ownership. Lending institutions are more likely to finance an existing business than a new business because the risks are better understood.

Diff: 3     Type: ES     Page Ref: 81

Skill:  Comprehension

Objective:  4.3

 

 

14) What is the difference between debt and equity financing?

Answer:  Debt financing involves borrowing funds. With debt financing, the borrower is required to repay the amount of the loan plus interest charges. In contrast, equity financing refers to money invested in a business in exchange for an ownership interest. Equity investors are interested in profits and how they will be distributed. With equity financing, there is not a locked-in financing charge as there is with debt financing.

Diff: 2     Type: ES     Page Ref: 82

Skill:  Comprehension

Objective:  4.3

15) What are the most common sources of equity financing?

Answer:  The most common sources of equity financing are personal savings, love money (investments from friends, relatives, and business associates), private investors (informal capital from private investors called angels, who are financially well off, successful entrepreneurs), and venture capitalists (professionally managed pools of investor money called venture capital).

Diff: 2     Type: ES     Page Ref: 82

Skill:  Comprehension

Objective:  4.3

 

16) Describe private investors (angels) and venture capitalists.

Answer:  Angels are typically financially well off and often successful entrepreneurs in their own right. They want to recycle their wealth through new business investment. A venture capitalist is an organization of professionally managed pools of investors’ money. They often get involved in higher risk ventures with high growth opportunities.

Diff: 2     Type: ES     Page Ref: 82

Skill:  Comprehension

Objective:  4.3

 

17) Describe the two most common sources of debt financing.

Answer:  The two most common sources are financial institutions (commercial banks, trust companies, co-operatives, finance companies, equipment companies, credit unions, and government agencies) and suppliers (who provide goods or services to the entrepreneur with an agreement to bill them later).

Diff: 1     Type: ES     Page Ref: 82

Skill:  Comprehension

Objective:  4.3

 

 

18) Explain what the idea of “entrepreneurial fit” means. Give an example.

Answer:  Entrepreneurial fit refers to the match between the three elements in the entrepreneurial process (the entrepreneur, the opportunity, and the resources needed). For example, the entrepreneur—opportunity fit refers to the extent to which the opportunity that is being considered is something the entrepreneur can do and wants to do. A realistic self-assessment is important. Prospective ventures that are of limited personal interest and require skills and abilities that the entrepreneur does not possess should be quickly eliminated. No matter how good the product or service concept is, if the opportunity demands skills that the entrepreneur lacks, it is unlikely that success will be evident.

Diff: 2     Type: ES     Page Ref: 84

Skill:  Comprehension

Objective:  4.3

19) Discuss the advantages and disadvantages of buying a franchise to start a new business.

Answer:  Advantages:

– Not building step by step

– Increased chances of success

– Help from experienced management

– Training for employees

– Advertising

Disadvantages

– Start-up costs are high

– Ongoing payments are required (franchise fees)

– Lack of independence

Diff: 2     Type: ES     Page Ref: 86

Skill:  Comprehension

Objective:  4.4

 

20) How does franchising work?

Answer:  A franchising agreement outlines the duties and responsibilities of each party. It stipulates the amount and type of payment that franchisees must make to the franchiser. These franchise agreements may be quite complicated and detailed. Franchisees usually make an initial payment for the right to operate an outlet. They also make royalty payments to the franchiser ranging from 2 to 30 percent of the franchisee’s annual revenues or profits. The franchisee may also pay an advertising fee to the franchiser. Franchise fees vary widely, from $23 500 for a Mad Science franchise, to over $1 million for a Burger King franchise, to hundreds of millions for a professional sports franchise.

Diff: 2     Type: ES     Page Ref: 86

Skill:  Comprehension

Objective:  4.4

 

 

21) Why is there such a difference between the failure rates of small businesses in general and franchising operations in particular?

Answer:  Franchises fail less because the owner/operator is supplied with:

– A proven product/service

– Proven marketing

– Financing strategy

– Established name

– Proven operations guide

Diff: 2     Type: ES     Page Ref: 86

Skill:  Comprehension

Objective:  4.4

 

22) Identify the four major factors that contribute to small business success.

Answer:  The four factors are hard work, drive, and dedication (small business owners must be committed to succeeding and be willing to put in the time and effort to make it happen), market demand for the product or service (careful analysis of market conditions can help small business people assess the probable reception of their products), managerial competence (successful small business people have a solid understanding of how to manage a business), and luck.

Diff: 3     Type: ES     Page Ref: 87

Skill:  Knowledge

Objective:  4.5

23) Identify the four major factors that contribute to small business failure.

Answer:  The four major factors are managerial incompetence (entrepreneurs overestimate their own managerial skills, or believe that hard work alone ensures success), neglect (some entrepreneurs try to launch ventures in their spare time, and others devote only limited time to new businesses), weak control systems (control systems don’t signal potential problems, so the business may be in serious trouble before obvious difficulties are spotted), and insufficient capital (some entrepreneurs are overly optimistic about how soon they’ll start earning profits).

Diff: 1     Type: ES     Page Ref: 87

Skill:  Knowledge

Objective:  4.5

 

24) Identify the four major forms of legal organization for business firms. List two advantages and two disadvantages of each.

Answer:

– Sole proprietorship – freedom, low start-up costs, unlimited liability, difficulty raising money

– Partnership – greater talent pool, ease of formation, unlimited liability, lack of continuity

– Corporation – limited liability, continuity, high start-up costs, double taxation

– Co-operative – reduced prices, share of surpluses, one vote per member, wealthy members have no voting control

Diff: 2     Type: ES     Page Ref: 88-90

Skill:  Comprehension

Objective:  4.6

 

 

25) Describe the advantages and disadvantages of operating a business as a sole proprietorship.

Answer:  The advantages of sole proprietorships include freedom, ease of formation, and tax benefits. A sole proprietor is free to operate his or her business as he or she desires. There are few legal requirements for start-up and low start-up costs. Losses from a sole proprietorship can offset income from personal sources, providing tax benefits. The disadvantages of sole proprietorships include unlimited liability, lack of continuity, and limited financing options. A sole proprietor is totally responsible for all of the debts of the business and may have to give up personal assets to repay those debts. A sole proprietorship lacks continuity because the business dissolves with the death of the owner. Finally, sole proprietors have a limited ability to secure financing, relying mostly on their personal resources.

Diff: 2     Type: ES     Page Ref: 88

Skill:  Comprehension

Objective:  4.6

 

26) Describe the advantages and disadvantages of operating a business as a partnership.

Answer:  Advantages of the partnership include the ability to grow by adding talent and money, an easier time borrowing funds than sole proprietorships, and new partners can be invited to join by investing money. Disadvantages include unlimited liability, if one partner incurs a debt all other partners are liable, lack of continuity (when one partner dies or pulls out, a partnership dissolves legally, even if the other partners agree to continue the business), difficulty of transferring ownership (no partner may sell out without the other partners’ consent), and conflicts that may develop between the partners.

Diff: 2     Type: ES     Page Ref: 88

Skill:  Comprehension

Objective:  4.6

27) Why is unlimited liability a significant disadvantage to both the sole proprietorship and general partnership forms of organization?

Answer:

– Sole proprietors are in a high risk situation as they are solely responsible for all debts of the firm

– Those involved in a general partnership are also responsible for all debts of the firm, even if they did not cause those debts or had no knowledge of them being incurred

– Personal possessions, with some limitations, may have to be sold to satisfy the debts of the business in both sole proprietorships and partnerships

Diff: 3     Type: ES     Page Ref: 88

Skill:  Comprehension

Objective:  4.6

 

 

28) What is a corporation?

Answer:  A corporation is a business that is legally considered a separate entity from its owners. It may sue and be sued; buy, hold, and sell property; make and sell products; and be tried and punished for crimes. An advantage of incorporation is limited liability: Investor liability is limited to personal investments in the firm. Another advantage is continuity. Corporations also have advantages in raising money. By selling stock, they expand the number of investors and available funds. One disadvantage is that a corporation can be taken over against the managers’ will. Also, start-up costs are high. Corporations are regulated and must meet legal requirements in the states in which they are chartered. A drawback to incorporation is double taxation. Different kinds of corporations help businesses take advantage of incorporation without assuming all of the disadvantages.

Diff: 3     Type: ES     Page Ref: 89

Skill:  Comprehension

Objective:  4.6

 

29) What are the advantages and disadvantages of the corporate form of organization?

Answer:  A corporation is a business that is legally considered a separate entity from its owners. They may sue and be sued; buy, hold, and sell property; make and sell products; and be tried and punished for crimes. An advantage of incorporation is limited liability, which means that investor liability is limited to personal investments in the firm. Another advantage is continuity. Corporations also have advantages in raising money. By selling stock, they expand the number of investors and available funds. One disadvantage is that a corporation can be taken over against the managers’ will. Also, start-up costs are high. Corporations are regulated and must meet legal requirements in the states in which they are chartered. A drawback to incorporation is double taxation. Different kinds of corporations help businesses take advantage of incorporation without assuming all of the disadvantages.

Diff: 3     Type: ES     Page Ref: 90

Skill:  Comprehension

Objective:  4.6

30) The Miller brothers (Jack, Bill, and Evan) are about to fulfill a lifelong dream. They are buying a thousand-acre farm and plan to grow corn. They are not interested in bringing in any outside owners. The brothers are realistic and expect to work very long hours. Assuming the farm is organized as a general partnership, what are the advantages and disadvantages?

Answer:  The advantages of a general partnership include the ability to grow by adding new talent and money, easy formation with few legal requirements, and tax benefits since a partnership is taxed at the individual level. The disadvantages of a general partnership include unlimited liability in that the partners are personally liable for all debts incurred by the business, and a lack of continuity in that the business legally dissolves when a partner leaves or dies.

Diff: 3     Type: ES     Page Ref: 88

Skill:  Comprehension

Objective:  4.6

 

 

31) The Miller brothers (Jack, Bill, and Evan) are about to fulfill a lifelong dream. They are buying a thousand-acre farm and plan to grow corn. They are not interested in bringing in any outside owners. The brothers are realistic and expect to work very long hours. Assuming the farm is organized as a private corporation, what are the advantages?

Answer:  The advantages of a private corporation include limited liability in that owner liability is limited to personal investments in the business, and continuity that allows that the legal life of the business is independent of owners. The disadvantages of a private corporation include significant start-up costs and double taxation, in which profits are taxed at corporate and individual levels.

Diff: 3     Type: ES     Page Ref: 90

Skill:  Comprehension

Objective:  4.6

 

32) How are corporations managed?

Answer:  The governing body of a corporation is its board of directors. Most board members do not participate in day-to-day management but rather hire a team of managers to oversee the various areas of the company. This team, called officers, is usually headed by a chief executive officer, or CEO, who is responsible for overall performance of the company.

Diff: 2     Type: ES     Page Ref: 89

Skill:  Comprehension

Objective:  4.6

 

33) Explain the role of a corporation’s board of directors.

Answer:  The board of directors is responsible for communicating with shareholders and other stakeholders and for setting financial policy on issues such as dividends, major spending, and executive compensation. The board is legally responsible and accountable for corporate actions.

Diff: 2     Type: ES     Page Ref: 89

Skill:  Comprehension

Objective:  4.6

34) Explain why double taxation is considered a disadvantage of a corporate form of organization. Explain how double taxation occurs.

Answer:  A corporation must pay income taxes on its profits, and then shareholders must pay income taxes on the dividends they receive. From the shareholder’s point of view, this procedure amounts to double taxation of the corporation’s profits. The profits of sole proprietorships and partnerships are only taxed once, since profits are treated as the owner’s personal income.

Diff: 2     Type: ES     Page Ref: 90

Skill:  Comprehension

Objective:  4.6

Chapter 13   Pricing, Promoting, and Distributing Products

 

13.1   Multiple-Choice Questions

 

1) What are the two main pricing objectives in corporate pricing?

  1. A) Market share and company image
  2. B) Advertising and sales promotion
  3. C) Company survival in a competitive marketplace and profit maximization
  4. D) Market share and profit maximization
  5. E) Advertising and profit maximization

Answer:  D

Diff: 1     Type: MC     Page Ref: 319

Skill:  Knowledge

Objective:  13.1

 

2) Piper & Son makes pickled peppers, sold in upscale supermarkets and specialty food stores. The company has profit-maximizing pricing objectives, so managers constantly monitor the prices of key ingredients such as peppers, vinegar, and garlic. How can setting the price for pickled peppers too high yield profits that are lower than the maximum?

  1. A) The high price will cause the convenience goods to become shopping goods.
  2. B) The high price will hurt the company’s reputation, so the product will decline.
  3. C) The high price will generate a large profit per jar, but too few jars will be sold.
  4. D) Customers will insist on paying a lower price, resulting in less income.
  5. E) The high price will cause expenses to rise, reducing profits.

Answer:  C

Diff: 2     Type: MC     Page Ref: 319

Skill:  Knowledge

Objective:  13.1

 

3) Companies often price their products to establish ________, a company’s percentage of the total market sales for a specific product type.

  1. A) break-even point
  2. B) sales percentage
  3. C) variable costs
  4. D) fixed costs
  5. E) market share

Answer:  E

Diff: 2     Type: MC     Page Ref: 319

Skill:  Knowledge

Objective:  13.1

 

4) By stocking a new, highly visible line of shampoos priced lower than local stores, Jack is trying to increase

  1. A) the quality of hair of the youth in the area.
  2. B) the break-even point.
  3. C) yield management.
  4. D) fixed costs so that the variable costs would decrease.
  5. E) his market share of the hair product market.

Answer:  E

Diff: 2     Type: MC     Page Ref: 319

Skill:  Comprehension

Objective:  13.1

 

5) What is “markup”?

  1. A) Markup is the point at which the firm covers the fixed and variable costs.
  2. B) Markup is the amount of money left over after all expenses have been deducted from revenues.
  3. C) Markup is an amount equal to demand divided by product cost.
  4. D) Markup is an amount added to the cost of the item to arrive at the selling price.
  5. E) Markup is the point where demand equals supply.

Answer:  D

Diff: 2     Type: MC     Page Ref: 320

Skill:  Comprehension

Objective:  13.1

 

6) Piper & Son sells pickled peppers to stores for $3 per jar, and the stores sell each jar to consumers for $7.50. What is the markup percentage?

  1. A) 40 percent
  2. B) 60 percent
  3. C) 67 percent
  4. D) 150 percent
  5. E) 250 percent

Answer:  B

Diff: 2     Type: MC     Page Ref: 320

Skill:  Application

Objective:  13.1

 

7) Sally is selling bracelets for $16.00 and the markup is $6.40. What is the markup percentage?

  1. A) 40 percent
  2. B) 12.5 percent
  3. C) 19.6 percent
  4. D) 36.4 percent
  5. E) 54 percent

Answer:  A

Diff: 3     Type: MC     Page Ref: 320

Skill:  Application

Objective:  13.1

 

8) If the cost of one unit of product is $8 and the store sells the product for $15, what is the markup percentage?

  1. A) 46.7 percent
  2. B) 41.3 percent
  3. C) 150.3 percent
  4. D) 214.5 percent
  5. E) 66.3 percent

Answer:  A

Diff: 2     Type: MC     Page Ref: 320

Skill:  Application

Objective:  13.1

 

9) If the cost of one unit of product is $12 and the store sells the product for $22, what is the markup percentage?

  1. A) 32 percent
  2. B) 41 percent
  3. C) 45 percent
  4. D) 21 percent
  5. E) 66 percent

Answer:  C

Diff: 2     Type: MC     Page Ref: 320

Skill:  Application

Objective:  13.1

 

10) Sara is selling posters at the sale price of $12.00, and the markup percentage is 35 percent. What is the dollar amount of the markup?

  1. A) $7.80
  2. B) $4.20
  3. C) $7.75
  4. D) $3.50
  5. E) None of these

Answer:  B

Diff: 3     Type: MC     Page Ref: 320

Skill:  Application

Objective:  13.1

 

11) The amount added to a product’s cost to meet profit targets is usually expressed as a percentage of

  1. A) selling price.
  2. B) selling costs.
  3. C) component costs.
  4. D) total costs.
  5. E) wholesale price.

Answer:  A

Diff: 2     Type: MC     Page Ref: 320

Skill:  Knowledge

Objective:  13.1

12) What are the two basic tools used in price-setting?

  1. A) Profit maximization and market share
  2. B) Advertising and sales promotion
  3. C) Cost-oriented pricing and break-even analysis
  4. D) Cost-oriented pricing and profit maximization
  5. E) Cost-oriented pricing and market share

Answer:  C

Diff: 1     Type: MC     Page Ref: 320

Skill:  Knowledge

Objective:  13.1

 

13) How is markup percentage calculated?

  1. A) By dividing the selling price by fixed costs
  2. B) By adding the selling price and the cost of advertising
  3. C) By dividing the selling price by the dollar amount of the markup
  4. D) By dividing the dollar amount of the markup by the selling price
  5. E) By dividing inventory by the selling price

Answer:  D

Diff: 2     Type: MC     Page Ref: 320

Skill:  Comprehension

Objective:  13.1

 

14) Costs that change with the quantity of a product that is produced or sold are

  1. A) ongoing costs.
  2. B) variable costs.
  3. C) fixed costs.
  4. D) product costs.
  5. E) selling costs.

Answer:  B

Diff: 1     Type: MC     Page Ref: 320

Skill:  Knowledge

Objective:  13.1

 

15) A highly successful bakery specializes in making cherry tarts. Which of the following costs at the bakery is not variable?

  1. A) Cost of cherries
  2. B) Cost of flour
  3. C) Cost of wax paper liners
  4. D) Cost of the oven
  5. E) Cost of heating the oven

Answer:  D

Diff: 1     Type: MC     Page Ref: 320

Skill:  Knowledge

Objective:  13.1

 

16) If the Piper & Son’s fixed cost for making pickled peppers is $200 000, and its variable cost per jar is $1, how many jars would the company have to sell at $3 per jar to break even?

  1. A) 50 000
  2. B) 66 667
  3. C) 100 000
  4. D) 133 333
  5. E) 300 000

Answer:  C

Diff: 1     Type: MC     Page Ref: 320

Skill:  Knowledge

Objective:  13.1

 

17) A music storeowner would begin to price DVDs by taking into consideration all of the following costs except

  1. A) market share objectives.
  2. B) utilities and insurance.
  3. C) store rent and staff salaries.
  4. D) product displays.
  5. E) cost of buying DVDs from the manufacturer.

Answer:  A

Diff: 2     Type: MC     Page Ref: 320

Skill:  Comprehension

Objective:  13.1

 

18) What is the purpose of using break-even analysis when attempting to set prices?

  1. A) To determine the total costs of the product
  2. B) To show the cost, volume, and profit relationships
  3. C) To compare demand and supply
  4. D) To reflect the markup needed to make a profit
  5. E) To show the costs which must be considered in setting prices

Answer:  B

Diff: 2     Type: MC     Page Ref: 320

Skill:  Comprehension

Objective:  13.1

 

19) What information is provided to the manager by performing a break-even analysis?

  1. A) The break-even point identifies the total costs.
  2. B) The break-even point identifies the point where variable costs equal fixed costs.
  3. C) Sales volume above the break-even point makes a profit for the firm.
  4. D) The break-even point identifies the amount of markup.
  5. E) The break-even point identifies the intersection of the demand and supply curves.

Answer:  C

Diff: 2     Type: MC     Page Ref: 320

Skill:  Comprehension

Objective:  13.1

 

20) Betty’s Breads is trying to calculate its break-even point. Monthly fixed costs are $5255. The cost of making one loaf of bread, considering labour and materials, is $3.50. Betty’s sells the bread at $6 per loaf. How many loaves does Betty’s need to sell each month in order to break even?

  1. A) 251
  2. B) 626
  3. C) 1502
  4. D) 2102
  5. E) 2200

Answer:  D

Diff: 2     Type: MC     Page Ref: 320

Skill:  Application

Objective:  13.1

 

21) Shiras Watch Depot prices all watches at $150. The variable cost per watch is $70 and the fixed costs are $55 000. What is Shiras’s break-even point in units?

  1. A) 687.50
  2. B) 806.25
  3. C) 702.00
  4. D) 300.00
  5. E) 453.75

Answer:  A

Diff: 3     Type: MC     Page Ref: 320

Skill:  Application

Objective:  13.1

 

22) Which of the following best represents the formula for the break-even point?

  1. A) Total variable costs divided by (price minus variable costs)
  2. B) Total variable costs divided by (price minus fixed costs)
  3. C) Total fixed costs divided by (price minus variable costs)
  4. D) Total fixed costs divided by (price minus fixed costs)
  5. E) Total revenue divided by (price minus fixed costs)

Answer:  C

Diff: 2     Type: MC     Page Ref: 320

Skill:  Comprehension

Objective:  13.1

 

 

23) Which of the following is correct with regard to break-even analysis?

  1. A) Variable costs are really all that is important.
  2. B) Fixed costs are all that really is important.
  3. C) Some costs are unaffected by the number of units of product that are sold.
  4. D) Generally speaking, retailers should charge higher prices so that they will reach the break-even point earlier.
  5. E) Break-even analysis fails to take into account the slope of the demand curve.

Answer:  C

Diff: 2     Type: MC     Page Ref: 320

Skill:  Comprehension

Objective:  13.1

24) What is the best definition of the term fixed costs?

  1. A) Costs that are needed to acquire a fixed market share
  2. B) Costs that are needed to acquire fixed profits
  3. C) Costs that are unaffected by the number of goods sold by the firm
  4. D) Costs that remain the same from year to year
  5. E) Costs that remain the same across all products

Answer:  C

Diff: 2     Type: MC     Page Ref: 320

Skill:  Comprehension

Objective:  13.1

 

25) What results can be expected if Trimar Videos used a price skimming strategy to price its video equipment?

  1. A) Large profits may be earned on each sale.
  2. B) It may generate a lot of consumer interest, but very low profits.
  3. C) It permits the store to gain entrance to a market and then later adjust the price to a more realistic figure.
  4. D) It generates a lot of consumer interest.
  5. E) It will increase Trimar’s market share

Answer:  A

Diff: 2     Type: MC     Page Ref: 321

Skill:  Comprehension

Objective:  13.2

 

26) What pricing strategy has generally been used for HDTV?

  1. A) Penetration pricing
  2. B) Price lining
  3. C) Market pricing
  4. D) Price fixing
  5. E) Price skimming

Answer:  E

Diff: 1     Type: MC     Page Ref: 321

Skill:  Knowledge

Objective:  13.2

 

 

27) Which of the following is correct with regard to the pricing of existing and new products?

  1. A) Price skimming is generally most effective for consumer goods, but penetration pricing is generally most effective for industrial goods.
  2. B) The penetration pricing option is generally most effective for both consumer and industrial goods.
  3. C) In the car rental business, setting prices below the market generally works best.
  4. D) Penetration pricing is generally superior to a skimming strategy for new products.
  5. E) None of these is correct.

Answer:  E

Diff: 2     Type: MC     Page Ref: 321

Skill:  Comprehension

Objective:  13.2

28) Which of the following pricing strategies best describes price lining?

  1. A) Setting an initial low price to establish a new product in the market
  2. B) Setting an initial high price to cover new product costs and generate a profit
  3. C) Setting individually negotiated prices for certain categories of products
  4. D) Setting a limited number of prices for certain categories of products
  5. E) Setting individually negotiated prices for all categories of products

Answer:  D

Diff: 2     Type: MC     Page Ref: 322

Skill:  Comprehension

Objective:  13.2

 

29) Which of the following options best describes an example of price lining?

  1. A) Having the price of each individual song on an online music store be determined by length of song
  2. B) Having the price of each individual song on an online music store be determined by popularity of the band
  3. C) Having the price of each individual song on an online music store be determined by user auction
  4. D) Having the price of each individual song on an online music store be determined by reverse auction
  5. E) Having the price of each individual song on an online music store be determined by which of several categories the song falls into

Answer:  E

Diff: 2     Type: MC     Page Ref: 322

Skill:  Comprehension

Objective:  13.2

 

 

30) The pricing strategy that is used to create consumer interest and stimulate trial purchases of a new product is

  1. A) penetration pricing.
  2. B) price lining.
  3. C) market pricing.
  4. D) price fixing.
  5. E) price skimming.

Answer:  A

Diff: 1     Type: MC     Page Ref: 321

Skill:  Knowledge

Objective:  13.2

 

31) Which of the following pricing strategies has stimulation of sales as a higher priority than maximization of profits?

  1. A) Price fixing
  2. B) Penetration pricing
  3. C) Price skimming
  4. D) Price pointing
  5. E) Price lining

Answer:  B

Diff: 1     Type: MC     Page Ref: 321

Skill:  Knowledge

Objective:  13.2

32) Which of the following is correct with regard to the pricing of new products?

  1. A) There are two basic strategies available: follow-the-leader and price leadership.
  2. B) Price skimming is more effective than penetration pricing.
  3. C) Penetration pricing is generally more effective than price skimming.
  4. D) Price skimming involves trying to sell a new product only to customers with the highest income levels.
  5. E) Penetration pricing is designed to stimulate trial purchase.

Answer:  E

Diff: 2     Type: MC     Page Ref: 321

Skill:  Knowledge

Objective:  13.2

 

33) Penetration pricing involves

  1. A) setting prices in uneven dollar amounts.
  2. B) setting an initial low price to establish a new product in the market.
  3. C) taking advantage of the fact that consumers do not always respond rationally to stated prices.
  4. D) setting an initial high price to cover new product costs and generate a profit.
  5. E) setting a limited number of prices for certain categories of products.

Answer:  B

Diff: 2     Type: MC     Page Ref: 321

Skill:  Comprehension

Objective:  13.2

 

 

34) Which of the following is correct with regard to the issue of fixed versus dynamic pricing?

  1. A) When launching new products, start-up firms generally use dynamic pricing until they get a better understanding of the market.
  2. B) In the digital marketplace, dynamic pricing is the norm.
  3. C) Amazon.com uses fixed pricing as its pricing strategy for its millions of retail items.
  4. D) The reverse auction is one type of fixed pricing.
  5. E) All of these are correct.

Answer:  C

Diff: 2     Type: MC     Page Ref: 321

Skill:  Comprehension

Objective:  13.2

 

35) Many e-tailers, such as eBay and Priceline, use ________ pricing.

  1. A) penetration
  2. B) skimming
  3. C) dynamic
  4. D) psychological
  5. E) odd-even

Answer:  C

Diff: 2     Type: MC     Page Ref: 321

Skill:  Knowledge

Objective:  13.2

36) What term identifies a company’s policy of offering all items in certain categories (e.g., men’s suits) at a limited number of prices?

  1. A) Price skimming
  2. B) Boundary pricing
  3. C) Discounting
  4. D) Penetration pricing
  5. E) Price lining

Answer:  E

Diff: 2     Type: MC     Page Ref: 322

Skill:  Knowledge

Objective:  13.2

 

37) “Sears Good,” “Sears Better,” and “Sears Best” are examples of

  1. A) market pricing.
  2. B) price fixing.
  3. C) psychological pricing.
  4. D) price lining.
  5. E) price discounting.

Answer:  D

Diff: 2     Type: MC     Page Ref: 322

Skill:  Comprehension

Objective:  13.2

 

 

38) Psychological pricing involves

  1. A) setting an initial low price to establish a new product in the market.
  2. B) setting prices in uneven dollar amounts.
  3. C) setting a limited number of prices for certain categories of products.
  4. D) setting an initial high price to cover new product costs and generating a profit.
  5. E) taking advantage of the fact that consumers do not always respond rationally to stated prices.

Answer:  E

Diff: 2     Type: MC     Page Ref: 322

Skill:  Comprehension

Objective:  13.2

 

39) If Louisa’s Craft Supply Store uses odd-even psychological pricing, then it would likely price its yarn at

  1. A) $4.50 per ball.
  2. B) $4 per ball.
  3. C) $5 per ball.
  4. D) $4.95 per ball.
  5. E) $6 per ball.

Answer:  D

Diff: 1     Type: MC     Page Ref: 322

Skill:  Comprehension

Objective:  13.2

40) Julia, owner of Julia’s Craft Supply Store would like to take advantage of the fact that customers are not completely rational when making buying decisions and may prefer prices that are not stated in even dollar amounts. Which pricing tactic is she interested in?

  1. A) Discounting
  2. B) Price skimming
  3. C) Psychological pricing
  4. D) Skewed pricing
  5. E) Price lining

Answer:  C

Diff: 2     Type: MC     Page Ref: 322

Skill:  Comprehension

Objective:  13.2

 

41) Odd-even pricing involves

  1. A) setting a limited number of prices for certain categories of products.
  2. B) setting an initial high price to cover new product costs and generating a profit.
  3. C) taking advantage of the fact that consumers do not always respond rationally to stated prices.
  4. D) setting prices in uneven dollar amounts.
  5. E) setting an initial low price to establish a new product in the market.

Answer:  D

Diff: 2     Type: MC     Page Ref: 322

Skill:  Comprehension

Objective:  13.2

 

 

42) When is discounting used to set prices?

  1. A) When attempting to stimulate sales
  2. B) When odd-even psychological pricing is not successful
  3. C) When conducting a break-even analysis
  4. D) When a price-skimming strategy is used
  5. E) When profit margins are too low

Answer:  A

Diff: 2     Type: MC     Page Ref: 322

Skill:  Comprehension

Objective:  13.2

 

43) Searchmont Ski Resort was finding that spring was a particularly slow time for chalet rentals. In order to increase the occupancy rate, Searchmont implemented a(n)

  1. A) advertising campaign.
  2. B) seasonal discount.
  3. C) skimming pricing strategy.
  4. D) penetration pricing strategy.
  5. E) trade credit policy.

Answer:  B

Diff: 2     Type: MC     Page Ref: 322

Skill:  Comprehension

Objective:  13.2

44) Promotion seeks to accomplish all of the following with potential customers except

  1. A) persuade them to purchase products.
  2. B) persuade them to dislike all other competitors’ products.
  3. C) make them aware of products.
  4. D) make them knowledgeable about products.
  5. E) persuade them to like products.

Answer:  B

Diff: 2     Type: MC     Page Ref: 322

Skill:  Comprehension

Objective:  13.3

 

45) When Burger King tells you about a new restaurant that it is opening near you, it is attempting to fulfill which promotional objective?

  1. A) Remind you about the product
  2. B) Communicate information
  3. C) Positioning products
  4. D) Controlling sales volume
  5. E) Eliminate competition

Answer:  B

Diff: 2     Type: MC     Page Ref: 322

Skill:  Knowledge

Objective:  13.3

 

 

46) What is the ultimate objective of any type of promotion?

  1. A) Image enhancement
  2. B) Creative selling
  3. C) To increase sales
  4. D) To advertise
  5. E) To increase consumer knowledge of the product

Answer:  C

Diff: 2     Type: MC     Page Ref: 322

Skill:  Knowledge

Objective:  13.3

 

47) A ________ strategy is a promotional strategy designed to encourage wholesalers and retailers to market those products to the consumer.

  1. A) push
  2. B) position
  3. C) product
  4. D) pull
  5. E) place

Answer:  A

Diff: 1     Type: MC     Page Ref: 322

Skill:  Knowledge

Objective:  13.3

48) Mega Computer, a computer manufacturer, is using direct mail to send 10 percent off coupons to its list of potential customers. This strategy is called a ________ strategy.

  1. A) pull
  2. B) product
  3. C) position
  4. D) push
  5. E) place

Answer:  A

Diff: 2     Type: MC     Page Ref: 322

Skill:  Comprehension

Objective:  13.3

 

49) Mega Computers, a computer manufacturer, has decided to promote its new line of computers by offering its wholesalers and retailers an additional 5 percent off list prices. This strategy is called a ________ strategy.

  1. A) product
  2. B) pull
  3. C) push
  4. D) place
  5. E) position

Answer:  C

Diff: 2     Type: MC     Page Ref: 322

Skill:  Comprehension

Objective:  13.3

 

50) Why would a business firm want to use controlling sales volume as a promotional objective?

  1. A) A company will aggressively push its products through wholesalers and retailers who persuade customers to buy it.
  2. B) The production and distribution systems will run more smoothly when the firm achieves a more stable sales volume during the year.
  3. C) The company is trying to appeal to a specific segment of the market.
  4. D) Consumers are more likely to purchase a product when they have been informed about it.
  5. E) The company wants to be able to communicate information to consumers when it is more economical to do so.

Answer:  B

Diff: 2     Type: MC     Page Ref: 322

Skill:  Comprehension

Objective:  13.3

 

51) Which promotional strategy appeals directly to the consumer who demands the product from retailers, who, in turn, demand the product from wholesalers?

  1. A) Product positioning
  2. B) Layered promotion
  3. C) Pull strategy
  4. D) Contests
  5. E) Push strategy

Answer:  C

Diff: 1     Type: MC     Page Ref: 322

Skill:  Knowledge

Objective:  13.3

52) During the ________ phase of the consumer buying process, marketers emphasize ________.

  1. A) buyers evaluate products after purchase; personal selling
  2. B) buyers seek information; sales promotion
  3. C) consumers recognize the need to make a purchase; advertising and publicity
  4. D) buyers compare competing products; advertising and public relations
  5. E) buyers purchase products; advertising

Answer:  C

Diff: 3     Type: MC     Page Ref: 323

Skill:  Knowledge

Objective:  13.3

 

 

53) During the ________ phase of the consumer buying process, marketers emphasize ________.

  1. A) buyers evaluate products after purchase; sales promotion
  2. B) buyers seek information; sales promotion
  3. C) consumers recognize the need to make a purchase; personal selling
  4. D) buyers compare competing products; advertising and public relations
  5. E) buyers purchase products; sales promotion

Answer:  E

Diff: 3     Type: MC     Page Ref: 323

Skill:  Knowledge

Objective:  13.3

 

54) The communications vehicle that is flexible, has rapid coverage, but lasts briefly and cannot target audiences very well is

  1. A) direct mail.
  2. B) newspapers.
  3. C) magazines.
  4. D) radio.
  5. E) television.

Answer:  B

Diff: 2     Type: MC     Page Ref: 323

Skill:  Knowledge

Objective:  13.4

 

55) What is meant by the term “product placement?”

  1. A) Making sure that products are prominently visible on store shelves
  2. B) Using brand-name products as part of the storyline of TV shows
  3. C) Choosing the channel of distribution with the lowest overall cost
  4. D) Placing free sample of products in consumers’ mailboxes so they can actually try the product
  5. E) Providing free product samples to influential consumers

Answer:  B

Diff: 2     Type: MC     Page Ref: 324

Skill:  Comprehension

Objective:  13.4

56) The communications vehicle that appeals to many consumer senses, can be targeted to a specific audience, and reaches more people than any other medium is

  1. A) magazines.
  2. B) radio.
  3. C) television.
  4. D) newspaper.
  5. E) direct mail.

Answer:  C

Diff: 2     Type: MC     Page Ref: 323-324

Skill:  Knowledge

Objective:  13.4

 

 

57) In terms of advertising revenues, which medium is the most important?

  1. A) Newspapers
  2. B) Television
  3. C) Radio
  4. D) Internet
  5. E) Magazines

Answer:  B

Diff: 2     Type: MC     Page Ref: 324

Skill:  Knowledge

Objective:  13.4

 

58) After television, what is the next most important medium in terms of advertising dollars spent?

  1. A) Mobile
  2. B) Online
  3. C) Magazines
  4. D) Radio
  5. E) Newspaper

Answer:  B

Diff: 2     Type: MC     Page Ref: 324

Skill:  Knowledge

Objective:  13.4

 

59) The communications vehicle that is inexpensive, that effectively segments the customers, but is not very long lasting is

  1. A) radio.
  2. B) direct mail.
  3. C) newspaper.
  4. D) television.
  5. E) magazines.

Answer:  A

Diff: 2     Type: MC     Page Ref: 324

Skill:  Knowledge

Objective:  13.4

60) This communications vehicle is highly segmented, allows for excellent visual communication, and is long-lived, but requires a long lead-time.

  1. A) Online
  2. B) Television
  3. C) Magazines
  4. D) Newspaper
  5. E) Outdoor

Answer:  C

Diff: 2     Type: MC     Page Ref: 324

Skill:  Knowledge

Objective:  13.4

 

 

61) Which advertising medium can present only limited information and sellers have little control over who sees their advertisements?

  1. A) Television
  2. B) Radio
  3. C) Online
  4. D) Magazines
  5. E) Outdoor

Answer:  E

Diff: 2     Type: MC     Page Ref: 324

Skill:  Knowledge

Objective:  13.4

 

62) Samantha wanted to use a flexible communication vehicle which would give her rapid coverage. She should select ________ advertising.

  1. A) television
  2. B) newspaper
  3. C) magazine
  4. D) radio
  5. E) online

Answer:  B

Diff: 2     Type: MC     Page Ref: 324

Skill:  Comprehension

Objective:  13.4

 

63) Adrianna developed a new perfume. She wanted to market the perfume via a communication vehicle that appeals to many consumer senses, targets a specific audience, and reaches as many people as possible. Adrianna would select ________ advertising.

  1. A) television
  2. B) magazine
  3. C) radio
  4. D) direct mail
  5. E) newspaper

Answer:  A

Diff: 2     Type: MC     Page Ref: 324

Skill:  Comprehension

Objective:  13.4

64) Which of the following is correct with regard to the various media?

  1. A) About twice as much is spent on advertising in magazines than is spent on newspapers.
  2. B) Newspapers generally allow advertisers to target their audiences well.
  3. C) Radio stations are generally not highly segmented into listening categories.
  4. D) Billboard messages are relatively expensive.
  5. E) People tend to use radio as “background” while they are doing other things.

Answer:  E

Diff: 2     Type: MC     Page Ref: 323-324

Skill:  Comprehension

Objective:  13.4

 

65) Sally selected ________ advertising because it is relatively inexpensive, faces little competition for customers’ attention, and is subject to high repeat exposure.

  1. A) outdoor
  2. B) magazine
  3. C) television
  4. D) online
  5. E) radio

Answer:  A

Diff: 2     Type: MC     Page Ref: 324

Skill:  Comprehension

Objective:  13.4

 

66) Jack wants to sell his new marketing ideas from any location and yet be as global as possible. Which advertising medium should Jack use?

  1. A) Word of mouth
  2. B) Radio
  3. C) Outdoor
  4. D) E-commerce
  5. E) Television

Answer:  D

Diff: 2     Type: MC     Page Ref: 324

Skill:  Comprehension

Objective:  13.4

 

67) Which of the following is correct with regard to the various media?

  1. A) Advertising spending on radio is larger than any other medium.
  2. B) Magazines provide a low level of consumer selectivity.
  3. C) Radio advertisements are fairly inexpensive.
  4. D) Magazine advertising is not very good at conveying to consumers the value of a product.
  5. E) Outdoor advertising is the most important form of advertising based on spending by companies.

Answer:  C

Diff: 2     Type: MC     Page Ref: 323-324

Skill:  Comprehension

Objective:  13.4

 

68) The promotional tool in which a salesperson communicates one-on-one with potential customers is

  1. A) direct mail.
  2. B) personal selling.
  3. C) television.
  4. D) radio.
  5. E) magazines.

Answer:  B

Diff: 1     Type: MC     Page Ref: 326

Skill:  Knowledge

Objective:  13.5

 

69) A firm that wanted to conduct a short-term activity in order to boost consumer buying would use which of the following strategies?

  1. A) Sales promotions
  2. B) Special offers
  3. C) Trade shows
  4. D) Point-of-sale displays
  5. E) Missionary selling

Answer:  A

Diff: 1     Type: MC     Page Ref: 327

Skill:  Knowledge

Objective:  13.5

 

70) The most expensive promotional tool on a cost per contact basis is

  1. A) personal selling.
  2. B) direct mail.
  3. C) television.
  4. D) radio.
  5. E) magazines.

Answer:  A

Diff: 2     Type: MC     Page Ref: 327

Skill:  Knowledge

Objective:  13.5

 

71) Which of the following represents a reason for a firm’s use of personal selling promotions?

  1. A) It is the only form of selling that works.
  2. B) It provides a personal link between the seller and the buyer.
  3. C) The salesforce has the capability of contacting the greatest number of potential customers.
  4. D) Personal selling provides the lowest promotional costs per contact.
  5. E) Sales promotions must be convenient and accessible when the purchase decision is made.

Answer:  B

Diff: 1     Type: MC     Page Ref: 327

Skill:  Comprehension

Objective:  13.5

 

72) Due to the high cost of personal selling, many companies are turning to

  1. A) radio advertising.
  2. B) telemarketing.
  3. C) coupons.
  4. D) contests.
  5. E) magazine advertising.

Answer:  B

Diff: 1     Type: MC     Page Ref: 327

Skill:  Knowledge

Objective:  13.5

 

73) Which of the following is a type of sales promotion?

  1. A) Publicity
  2. B) Contests and sweepstakes
  3. C) Advertising
  4. D) Personal selling
  5. E) Public relations

Answer:  B

Diff: 1     Type: MC     Page Ref: 327

Skill:  Knowledge

Objective:  13.5

 

74) The Cream Soap Company has launched a new campaign geared at increasing the sales volume of its new Fresh Smelling line of soap products. The $1.6 million campaign will cover the costs of providing samples of their soap products to be delivered with the Toronto Star newspaper to 500 000 homes in Toronto. This marketing technique is known as

  1. A) personal selling.
  2. B) public relations.
  3. C) advertising.
  4. D) publicity.
  5. E) sales promotion.

Answer:  E

Diff: 2     Type: MC     Page Ref: 327

Skill:  Comprehension

Objective:  13.5

 

75) Coupons, point-of-purchase displays, free samples, and trade shows are examples of

  1. A) advertising.
  2. B) sales promotions.
  3. C) publicity.
  4. D) personal selling.
  5. E) pricing.

Answer:  B

Diff: 2     Type: MC     Page Ref: 327

Skill:  Comprehension

Objective:  13.5

 

76) What is an advantage to the firm when using trade shows as a type of sales promotion?

  1. A) They are effective since the buyer comes to the seller.
  2. B) Coupons may be used to encourage customers to try new products.
  3. C) The displays serve to attract customer attention as they walk through a store.
  4. D) Free samples may be used to allow customers to try a product for a few days without any risk.
  5. E) Contests may increase sales by stimulating buyers’ interest in a product.

Answer:  A

Diff: 2     Type: MC     Page Ref: 327

Skill:  Comprehension

Objective:  13.5

 

77) A gas station offering a free car wash with a fill-up is an example of

  1. A) sales promotion.
  2. B) advertising.
  3. C) publicity.
  4. D) premiums.
  5. E) public relations.

Answer:  A

Diff: 3     Type: MC     Page Ref: 327

Skill:  Comprehension

Objective:  13.5

 

78) Which of the following makes it easier for customers to find a product and eliminate competitors’ products from consideration?

  1. A) POS displays
  2. B) Coupons
  3. C) Trade shows
  4. D) Contests
  5. E) Premiums

Answer:  A

Diff: 2     Type: MC     Page Ref: 327

Skill:  Knowledge

Objective:  13.5

 

79) Brian works at the local grocery store. His supervisor asked him to use point-of-sale displays. Brian needs to

  1. A) set up a product display so it is located in an area to encourage consumers to buy the products.
  2. B) set up a display where consumers can pick out one item free when they purchase a specified product.
  3. C) pass out coupons to customers purchasing the targeted products as they are checking out.
  4. D) set up a table and give out free samples.
  5. E) interview customers as they are considering a purchase of the targeted products.

Answer:  A

Diff: 2     Type: MC     Page Ref: 327

Skill:  Comprehension

Objective:  13.5

80) Dove is introducing a new deodorant. In order to entice customers to purchase the deodorant, a free bar of soap is attached to the package. Which type of sales promotion is Dove using?

  1. A) Point-of-sale display
  2. B) Premium
  3. C) Contest
  4. D) Trade show
  5. E) Coupons

Answer:  B

Diff: 2     Type: MC     Page Ref: 327

Skill:  Comprehension

Objective:  13.5

 

81) Algoma Banners set up a booth to display their products and to demonstrate products to customers who have a special interest in their product. Which sales promotion technique were they using?

  1. A) Coupons
  2. B) Premiums
  3. C) Contests
  4. D) Trade shows
  5. E) Point-of-sale displays

Answer:  D

Diff: 2     Type: MC     Page Ref: 327

Skill:  Comprehension

Objective:  13.5

 

82) A ________ entitles the bearer to stated savings off a product’s regular price, while a ________ is a free or reduced-price item given to consumers in return for buying a specified product.

  1. A) coupon; premium
  2. B) premium; coupon
  3. C) contest; premium
  4. D) point-of-sale display; contest
  5. E) premium; contest

Answer:  A

Diff: 1     Type: MC     Page Ref: 327

Skill:  Knowledge

Objective:  13.5

 

 

83) Which type of promotion is outside of the company’s control?

  1. A) Coupons
  2. B) Television advertising
  3. C) Personal selling by sales agents
  4. D) Publicity
  5. E) Trade shows

Answer:  D

Diff: 1     Type: MC     Page Ref: 327

Skill:  Knowledge

Objective:  13.5

84) As a start-up company, you need to find ways to reduce costs. Which type of promotion is free?

  1. A) Coupons
  2. B) Gift certificates
  3. C) Free samples
  4. D) Publicity
  5. E) Contests

Answer:  D

Diff: 1     Type: MC     Page Ref: 327

Skill:  Knowledge

Objective:  13.5

 

85) Which of the following best characterizes the difference between the roles of advertising and personal selling in the promotional mix of a firm?

  1. A) Advertising is, at its worst, very expensive with little return, whereas personal selling is also very expensive, at its worst, but with better returns.
  2. B) Advertising, at its best, targets a specific audience about a product, whereas personal selling, at its best, is always dependent on the clients that a seller has.
  3. C) Advertising involves public relations with the overall population of consumers, whereas personal selling involves personalized relationships with select individuals.
  4. D) Advertising is a relatively new method of promotion, whereas personal selling is the oldest method of promotion.
  5. E) Advertising is non-personal in its communication about a product, whereas personal selling is highly individualized.

Answer:  E

Diff: 3     Type: MC     Page Ref: 323-327

Skill:  Knowledge

Objective:  13.5

 

 

86) ________ attempts to build goodwill with customers by performing and publicizing a company’s public service activities.

  1. A) Personal selling
  2. B) Public relations
  3. C) Advertising
  4. D) Sales promotion
  5. E) Publicity

Answer:  B

Diff: 1     Type: MC     Page Ref: 328

Skill:  Knowledge

Objective:  13.5

 

87) Which of the following is an example of premiums?

  1. A) Contests that reward winners with free samples of the product
  2. B) Free items given out at trade shows
  3. C) Coupons for reduced prices on certain products
  4. D) Reduced-price items available upon purchase of a product
  5. E) Reduced-price items available during a sales promotion

Answer:  D

Diff: 1     Type: MC     Page Ref: 327

Skill:  Knowledge

Objective:  13.5

88) Which of the following best describes the purpose of point-of-sale displays?

  1. A) To inform customers about the benefits of the products
  2. B) To entice customers to buy additional products
  3. C) To make it easier for customers to find products
  4. D) To promote the reputation of the company offering certain products
  5. E) To target specific messages about the product to customers

Answer:  C

Diff: 1     Type: MC     Page Ref: 327

Skill:  Knowledge

Objective:  13.5

 

89) Which of the following describes best what distinguishes publicity among all other forms of promotion?

  1. A) Publicity is less directed than other forms of promotion.
  2. B) Publicity is less effective than other forms of promotion.
  3. C) Publicity is more impersonal than other forms of promotion.
  4. D) Publicity is cheaper than other forms of promotion.
  5. E) Publicity is more direct than other forms of promotion

Answer:  D

Diff: 1     Type: MC     Page Ref: 327

Skill:  Knowledge

Objective:  13.5

 

 

90) The most negative aspect of publicity is that

  1. A) it is expensive.
  2. B) it isn’t believable to many people.
  3. C) it isn’t that important.
  4. D) it is viewed as being biased.
  5. E) it isn’t controllable by the company.

Answer:  E

Diff: 3     Type: MC     Page Ref: 327

Skill:  Comprehension

Objective:  13.5

 

91) When McDonald’s announces that there are 168 Ronald McDonald houses in 12 countries, this announcement fits best in the category of

  1. A) publicity.
  2. B) creative selling.
  3. C) personal selling.
  4. D) public relations.
  5. E) missionary selling.

Answer:  D

Diff: 2     Type: MC     Page Ref: 328

Skill:  Comprehension

Objective:  13.5

92) The combination of distribution channels that a firm selects to get a product to its end users is its

  1. A) distribution mix.
  2. B) distribution strategy.
  3. C) distribution network.
  4. D) channel selection.
  5. E) channel intermediaries.

Answer:  A

Diff: 1     Type: MC     Page Ref: 329

Skill:  Knowledge

Objective:  13.6

 

93) A wholesaler is

  1. A) the combination of distribution channels by which a firm gets its products to end users.
  2. B) an intermediary who sells products to other businesses for resale to final consumers.
  3. C) an individual or firm that helps to distribute a product.
  4. D) a network of independent companies through which a product passes from producer to end user.
  5. E) an intermediary who sells products directly to consumers.

Answer:  B

Diff: 2     Type: MC     Page Ref: 329

Skill:  Comprehension

Objective:  13.6

 

 

94) A retailer is

  1. A) an individual or firm that helps to distribute a product.
  2. B) an intermediary who sells products to other businesses for resale to final consumers.
  3. C) an intermediary who sells products directly to consumers.
  4. D) a network of independent companies through which a product passes from producer to end user.
  5. E) the combination of distribution channels by which a firm gets its products to end users.

Answer:  C

Diff: 2     Type: MC     Page Ref: 329

Skill:  Comprehension

Objective:  13.6

 

95) A distribution channel is

  1. A) an intermediary who sells products directly to consumers.
  2. B) an intermediary who sells products to other businesses for resale to final consumers.
  3. C) the combination of distribution channels by which a firm gets its products to end users.
  4. D) an individual or firm that helps to distribute a product.
  5. E) a network of independent companies through which a product passes from producer to end user.

Answer:  E

Diff: 2     Type: MC     Page Ref: 329

Skill:  Comprehension

Objective:  13.6

96) An intermediary is

  1. A) the combination of distribution channels by which a firm gets its products to end users.
  2. B) a business that sells products to other businesses for resale to final consumers.
  3. C) a business that sells products directly to consumers.
  4. D) an individual or firm that helps to distribute a product.
  5. E) a network of independent companies through which a product passes from producer to end user.

Answer:  D

Diff: 2     Type: MC     Page Ref: 329

Skill:  Comprehension

Objective:  13.6

 

97) A(n) ________ sells products to a(n) ________ who sells them to customers.

  1. A) retailer; wholesaler
  2. B) wholesaler; intermediary
  3. C) intermediary; wholesaler
  4. D) intermediary; retailer
  5. E) wholesaler; retailer

Answer:  E

Diff: 1     Type: MC     Page Ref: 329

Skill:  Knowledge

Objective:  13.6

 

 

98) Where must all consumer product distribution channels begin?

  1. A) The industrial user
  2. B) The retailer
  3. C) The government
  4. D) The wholesaler
  5. E) The manufacturer/producer

Answer:  E

Diff: 1     Type: MC     Page Ref: 329

Skill:  Knowledge

Objective:  13.6

 

99) Warriners is a family-owned grocery store that sells approximately 12 cases of canned potatoes per year. It orders one case a month from a local wholesaler. This is an example of a

  1. A) channel 4 distribution system.
  2. B) channel 3 distribution system.
  3. C) channel 2 distribution system.
  4. D) channel 5 distribution system.
  5. E) channel 1 distribution system.

Answer:  B

Diff: 3     Type: MC     Page Ref: 329

Skill:  Comprehension

Objective:  13.6

100) Which distribution channel is used by companies such as Dell?

  1. A) Producer to retailer to consumer
  2. B) Producer to agent to retailer to consumer
  3. C) Producer to agent to wholesaler to retailer to consumer
  4. D) Producer to wholesaler to retailer to consumer
  5. E) Producer to consumer

Answer:  E

Diff: 2     Type: MC     Page Ref: 329

Skill:  Comprehension

Objective:  13.6

 

101) Lawless Container Corp. produces packaging containers and sells them to industrial buyers such as Fisher-Price and Mr. Coffee. Lawless is a

  1. A) channel 1 system.
  2. B) channel 4 system.
  3. C) channel 2 system.
  4. D) channel 3 system.
  5. E) none of these.

Answer:  A

Diff: 3     Type: MC     Page Ref: 329

Skill:  Comprehension

Objective:  13.6

 

 

102) The most widely used channel for industrial goods is

  1. A) producer to wholesaler to industrial user.
  2. B) producer to industrial user.
  3. C) producer to agent to retailer to industrial user.
  4. D) producer to retailer to industrial user.
  5. E) producer to agent to wholesaler to retailer to industrial user.

Answer:  B

Diff: 1     Type: MC     Page Ref: 329

Skill:  Knowledge

Objective:  13.6

 

103) An online comic book store is an example of which type of intermediary?

  1. A) Marketer
  2. B) Sales agent
  3. C) Broker
  4. D) Wholesaler
  5. E) Retailer

Answer:  E

Diff: 1     Type: MC     Page Ref: 329

Skill:  Knowledge

Objective:  13.6

104) Phillip is an independent intermediary who deals in the local produce market. Over the years, he has formed long-term relationships and come to represent several farmers in the area in the sale of their produce to local grocery stores. Which of the following titles best describes Phillip’s role in the distribution of produce?

  1. A) Wholesaler
  2. B) Retailer
  3. C) Sales agent
  4. D) Broker
  5. E) Direct marketer

Answer:  C

Diff: 3     Type: MC     Page Ref: 329

Skill:  Knowledge

Objective:  13.6

 

105) Goodyear and Levi’s have their own retail outlets. This is an example of which distribution channel?

  1. A) Direct distribution
  2. B) Retail distribution
  3. C) Wholesale distribution
  4. D) Distribution by agents
  5. E) Distribution by brokers

Answer:  B

Diff: 1     Type: MC     Page Ref: 329

Skill:  Comprehension

Objective:  13.6

 

106) Avon, Dell, and Tupperware use the ________ channel of distribution.

  1. A) direct distribution
  2. B) retail distribution
  3. C) wholesale distribution
  4. D) distribution by agents
  5. E) distribution by brokers

Answer:  A

Diff: 1     Type: MC     Page Ref: 329

Skill:  Comprehension

Objective:  13.6

 

107) When Vancouver-based Uniglobe Travel International books flight reservations, it is an illustration of which channel of distribution?

  1. A) Direct distribution
  2. B) Retail distribution
  3. C) Wholesale distribution
  4. D) Distribution by agents/brokers
  5. E) None of these

Answer:  D

Diff: 2     Type: MC     Page Ref: 329

Skill:  Comprehension

Objective:  13.6

108) In the direct channel of distribution, how many intermediaries are there between the producer and the consumer?

  1. A) 0
  2. B) 1
  3. C) 2
  4. D) 3
  5. E) 4

Answer:  A

Diff: 1     Type: MC     Page Ref: 329

Skill:  Knowledge

Objective:  13.6

 

109) Why is Walmart an example of retail distribution?

  1. A) Because it is so important on the Canadian retail scene
  2. B) Because it buys products directly from manufacturers
  3. C) Because it employs more retail employees than any other firm
  4. D) Because it uses sales agents only for its sporting goods department
  5. E) Because many industrial buyers shop there

Answer:  B

Diff: 2     Type: MC     Page Ref: 329

Skill:  Comprehension

Objective:  13.6

 

 

 

110) A company like Black & Decker has product lines which do not require intense market exposure to increase sales. Which distribution strategy is it likely to use?

  1. A) Intensive distribution
  2. B) Industrial distribution
  3. C) Discriminatory distribution
  4. D) Exclusive distribution
  5. E) Selective distribution

Answer:  E

Diff: 2     Type: MC     Page Ref: 330

Skill:  Comprehension

Objective:  13.6

 

111) Caramilk bars are an example of ________ distribution, whereas Jaguar cars are an example of ________ distribution.

  1. A) exclusive; selective
  2. B) selective; exclusive
  3. C) intensive; selective
  4. D) selective; selective
  5. E) intensive; exclusive

Answer:  E

Diff: 2     Type: MC     Page Ref: 330

Skill:  Comprehension

Objective:  13.6

112) The owner of Fiama Electric overheard the manager of a competing firm discussing his new exclusive distribution strategy. You explain to him that this strategy entails

  1. A) distributing the product through as many warehouses and retailers as possible, thereby excluding no one.
  2. B) distributing through the use of a limited number of outlets for a product.
  3. C) only one trucking firm being given the exclusive transportation contract to deliver the products.
  4. D) a firm selecting only those wholesalers and retailers who will give exclusive attention to their product.
  5. E) the manufacturer granting the right to distribute and sell the product to only one wholesaler or retailer in an area.

Answer:  E

Diff: 3     Type: MC     Page Ref: 330

Skill:  Comprehension

Objective:  13.6

 

 

113) Which of the following intermediaries usually receive commissions based on the prices of the goods they sell?

  1. A) Produce markets
  2. B) Wholesalers
  3. C) Retailers
  4. D) Agents
  5. E) All of these

Answer:  D

Diff: 1     Type: MC     Page Ref: 331

Skill:  Comprehension

Objective:  13.7

 

114) Which of the following intermediaries represents several producers and is paid a commission based on invoice values?

  1. A) Agent/broker
  2. B) Sales office
  3. C) Sales branch
  4. D) Merchant wholesaler
  5. E) Collective agent distribution

Answer:  A

Diff: 2     Type: MC     Page Ref: 331

Skill:  Knowledge

Objective:  13.7

 

115) How do agents differ from brokers?

  1. A) Agents receive commissions.
  2. B) Brokers take title to merchandise, but agents do not.
  3. C) Brokers provide information services to customers, but agents do not.
  4. D) Agents take title to merchandise, brokers do not.
  5. E) Agents deal in the product lines of a few producers usually on a long term basis, whereas brokers match sellers and buyers as needed.

Answer:  E

Diff: 2     Type: MC     Page Ref: 331

Skill:  Comprehension

Objective:  13.7

116) Jim Bradley represents several producers and is paid a commission based on invoice values. Which of the following types of intermediaries is Jim?

  1. A) Wholesaler
  2. B) Sales office
  3. C) Sales branch
  4. D) Agent/broker
  5. E) Rack jobber

Answer:  D

Diff: 2     Type: MC     Page Ref: 331

Skill:  Comprehension

Objective:  13.7

 

117) An independently owned wholesaler who purchases, stores, and repackages a product before selling the product to his or her customer is known as a(n)

  1. A) agent/broker.
  2. B) contract carrier.
  3. C) sales branch.
  4. D) distributor.
  5. E) merchant wholesaler.

Answer:  E

Diff: 1     Type: MC     Page Ref: 330

Skill:  Knowledge

Objective:  13.7

 

118) Which type of retailing activity is most likely to be found in a suburban shopping mall?

  1. A) Convenience stores
  2. B) Specialty stores
  3. C) Video marketing stores
  4. D) Wholesalers
  5. E) Factory outlets

Answer:  B

Diff: 1     Type: MC     Page Ref: 332

Skill:  Comprehension

Objective:  13.7

 

119) Department stores, supermarkets, and specialty stores are all

  1. A) bargain retailers.
  2. B) catalogue showrooms.
  3. C) discount houses.
  4. D) syndicated sellers.
  5. E) product line retailers.

Answer:  E

Diff: 2     Type: MC     Page Ref: 332

Skill:  Knowledge

Objective:  13.7

120) Edna’s Bakery produces large cakes for commercial events and weddings. Edna’s Bakery is a(n)

  1. A) convenience store.
  2. B) one-product store.
  3. C) specialty store.
  4. D) off-price store.
  5. E) variety store.

Answer:  C

Diff: 1     Type: MC     Page Ref: 332

Skill:  Comprehension

Objective:  13.7

 

 

 

121) What is the appeal of merchandise in a factory outlet?

  1. A) The outlet stores keep prices low by locating in a low rent area and operating on a cash only basis.
  2. B) The outlet is organized into different departments such as children’s clothing, bedding, drapes, and men’s clothing.
  3. C) The merchandise consists of many brand-name clothing, groceries, and appliances.
  4. D) Prices are lower because the outlet is owned by the manufacturer and bypasses intermediaries.
  5. E) Prices are lower because the outlet owners purchase the overstocked merchandise from manufacturers or large chains at a reduced price.

Answer:  D

Diff: 2     Type: MC     Page Ref: 332

Skill:  Comprehension

Objective:  13.7

 

122) Which of the following is the oldest form of direct-response retailing?

  1. A) Mail order
  2. B) Telemarketing
  3. C) Electronic retailing
  4. D) Mail marketing
  5. E) Direct selling

Answer:  E

Diff: 2     Type: MC     Page Ref: 331

Skill:  Knowledge

Objective:  13.7

 

123) The use of the telephone to sell directly to consumers is called

  1. A) telemarketing.
  2. B) mail marketing.
  3. C) mail order.
  4. D) direct selling.
  5. E) electronic retailing.

Answer:  A

Diff: 1     Type: MC     Page Ref: 332

Skill:  Knowledge

Objective:  13.7

124) Online retail sales in Canada are predicted to be approximately ________ in 2015.

  1. A) $3 billion
  2. B) $10 billion
  3. C) $18 billion
  4. D) $31 billion
  5. E) $50 billion

Answer:  D

Diff: 2     Type: MC     Page Ref: 332

Skill:  Knowledge

Objective:  13.7

 

125) .________ help Internet consumers by gathering and sorting information on comparison products and product features.

  1. A) Electronic retailers
  2. B) Direct-response sellers
  3. C) Syndicated sellers
  4. D) E-intermediaries
  5. E) Cybermalls

Answer:  D

Diff: 2     Type: MC     Page Ref: 332

Skill:  Knowledge

Objective:  13.7

 

126) The two major categories of physical distribution are

  1. A) transportation and materials handling.
  2. B) production and operations.
  3. C) inventory control and quality control.
  4. D) materials handling and inventory control.
  5. E) warehousing and transportation.

Answer:  E

Diff: 2     Type: MC     Page Ref: 333

Skill:  Knowledge

Objective:  13.8

 

127) ________ refers to the activities needed to move products efficiently from manufacturer to consumer.

  1. A) Order processing
  2. B) Customer-service operations
  3. C) Warehousing goods
  4. D) Physical distribution
  5. E) Direct marketing

Answer:  D

Diff: 2     Type: MC     Page Ref: 333

Skill:  Knowledge

Objective:  13.8

 

128) A wholesale grocer purchases groceries by truckload or railroad boxcar load and then fills individual grocery store orders from inventory. What transportation method will typically be used to ship these grocery orders to supermarkets within a 100-kilometre radius of the warehouse?

  1. A) Air
  2. B) Rail
  3. C) Water
  4. D) Pipeline
  5. E) Truck

Answer:  E

Diff: 2     Type: MC     Page Ref: 333

Skill:  Comprehension

Objective:  13.8

 

129) What is the advantage of using trucks as a method of transporting goods?

  1. A) Lowest rates
  2. B) Unaffected by weather conditions
  3. C) Fastest delivery times
  4. D) Less packaging of the product is required: therefore, packaging costs are lower
  5. E) Flexibility, dependability, and fast service to most parts of Canada

Answer:  E

Diff: 1     Type: MC     Page Ref: 333

Skill:  Knowledge

Objective:  13.8

 

130) Which of the following is most directly related to differences in transportation cost from mode to mode?

  1. A) Packing necessary for the product
  2. B) Fuel efficiency of the carrier
  3. C) Regularity of use of a given carrier
  4. D) Discount agreements with the carriers
  5. E) Delivery speed

Answer:  E

Diff: 1     Type: MC     Page Ref: 333

Skill:  Knowledge

Objective:  13.8

 

 

131) Which of the following modes of transportation is used primarily to transport heavy, bulky items such as cars, steel, and coal?

  1. A) Air
  2. B) Pipeline
  3. C) Trucks
  4. D) Water
  5. E) Railroads

Answer:  E

Diff: 2     Type: MC     Page Ref: 333

Skill:  Knowledge

Objective:  13.8

132) ________ are able to deliver a steady flow of product, unaffected by the weather.

  1. A) Water carriers
  2. B) Railroads
  3. C) Trucks
  4. D) Planes
  5. E) Pipelines

Answer:  E

Diff: 2     Type: MC     Page Ref: 333

Skill:  Knowledge

Objective:  13.8

 

133) Yellowknife Inc. is a small manufacturing company located in the far north of Canada. What transportation mode are they most likely to use?

  1. A) Trucks
  2. B) Trains
  3. C) Planes
  4. D) Water carriers
  5. E) Pipelines

Answer:  C

Diff: 2     Type: MC     Page Ref: 333

Skill:  Comprehension

Objective:  13.8

 

134) All of the following are advantages of plane transportation except

  1. A) reduced shipping costs.
  2. B) speed.
  3. C) reduced inventory carrying costs.
  4. D) reduced handling costs.
  5. E) reduced costs in packing.

Answer:  A

Diff: 1     Type: MC     Page Ref: 333

Skill:  Comprehension

Objective:  13.8

 

 

135) Doreen owns a seafood restaurant in Alberta. She would like to have the freshest seafood possible, so her preferred method of delivery would be

  1. A) plane.
  2. B) train.
  3. C) truck.
  4. D) any of these would deliver fresh seafood in an equal amount of time.
  5. E) none of these are good delivery methods for seafood.

Answer:  A

Diff: 1     Type: MC     Page Ref: 333

Skill:  Comprehension

Objective:  13.8

136) Of all transportation modes, ________ are the least expensive.

  1. A) trains
  2. B) pipelines
  3. C) water carriers
  4. D) planes
  5. E) trucks

Answer:  C

Diff: 1     Type: MC     Page Ref: 333

Skill:  Knowledge

Objective:  13.8

 

137) Which of the following is correct with regard to the various modes of transportation?

  1. A) Water transportation is the least expensive, but slowest of the various modes.
  2. B) One of the disadvantages of air travel is that it increases packing and handling costs.
  3. C) Trucks are a particularly good choice for long-distance distribution and for less expensive products.
  4. D) Overall, trucks are the best way to transport goods.
  5. E) All of these are correct.

Answer:  A

Diff: 1     Type: MC     Page Ref: 333

Skill:  Comprehension

Objective:  13.8

 

 

13.2   Critical Thinking Questions

 

1) Personal Devices Inc. is a manufacturer of premium cell phones. Most of the company’s handsets are equipped with high-end features such as large internal memory, sophisticated texting, camera and music functionalities, and data transfer capabilities. The company is planning to enter the Indian market. One of the senior managers argues that a stripped-down, low-priced model without any extras could be the starting point. The company can sell additional features added to the base model at higher price points.

 

Which of the following, if true, would most strengthen the senior manager’s argument?

  1. A) Research suggests that consumers are looking for more variety in this product category.
  2. B) The majority of India’s consumer market is located at the bottom of the pyramid.
  3. C) Few competitors in the market offer basic cell phones because of increasing customer sophistication.
  4. D) The company will face charges of dumping if it sells the phones at a price lower than what it offers in the home country.
  5. E) Different companies already cater to the requirements of different market segments in India.

Answer:  B

Diff: 3     Type: MC

Skill:  Analysis

2) Personal Devices Inc. is a manufacturer of premium cell phones. Most of the company’s handsets are equipped with high-end features such as large internal memory, sophisticated texting, camera and music functionalities, and data transfer capabilities. The company is planning to enter the Indian market. One of the senior managers argues that a stripped-down, low-priced model without any extras could be the starting point. The company can sell additional features added to the base model at higher price points.

 

Which of the following, if true, would weaken the senior manager’s argument?

  1. A) Producing a stripped-down model would alter high-end domestic customers’ view of the Personal Devices brand.
  2. B) A premium auto manufacturer who came out with economy cars suffered in the market.
  3. C) India recently blocked low-priced Chinese phones that did not have the International Mobile Equipment Identification number.
  4. D) Research suggests that the premium market segment is saturated.
  5. E) Even high-end customers typically do not use the advanced functionality in Personal Devices cell phones.

Answer:  A

Diff: 3     Type: MC

Skill:  Analysis

 

 

3) Personal Devices Inc. is a manufacturer of premium cell phones. Most of the company’s handsets are equipped with high-end features such as large internal memory, sophisticated texting, camera and music functionalities, and data transfer capabilities. The company is planning to enter the Indian market. One of the senior managers argues that a stripped-down, low-priced model without any extras could be the starting point. The company can sell additional features added to the base model at higher price points.

 

Extensive analysis reveals that if Personal Devices offered Indian customers products at a number of different price points, the company would initially earn more profits but damage the brand in the long term. Which of the following, if true, would support the argument that Personal Devices should offer products at multiple price points?

  1. A) One of the core values of Personal Devices is to offer only the most advanced technology.
  2. B) Major stockholders of Personal Devices are primarily motivated by short-term profits.
  3. C) Competitors have adapted their products considerably for the Indian market.
  4. D) Indian customers are increasingly becoming selective about the brands they purchase.
  5. E) The huge Indian middle class is rapidly reaching a level where they can afford premium products.

Answer:  B

Diff: 3     Type: MC

Skill:  Analysis

4) Personal Devices Inc. is a manufacturer of premium cell phones. Most of the company’s handsets are equipped with high-end features such as large internal memory, sophisticated texting, camera and music functionalities, and data transfer capabilities. The company is planning to enter the Indian market. One of the senior managers argues that a stripped-down, low-priced model without any extras could be the starting point. The company can sell additional features added to the base model at higher price points.

 

Extensive analysis reveals that if Personal Devices offered Indian customers products at multiple price points, the company would initially earn more profits but damage the brand in the long term. Which of the following, if true, would weaken the argument that Personal Devices should offer products at multiple price points?

  1. A) The Indian market is sufficiently large to support offerings at multiple price points.
  2. B) Taiwanese manufacturers have focused on the low to medium end when selling to their domestic markets.
  3. C) Brand image is the sum total of customer perceptions about a company.
  4. D) Research shows that the average domestic consumer tends to associate price with quality.
  5. E) Niche companies that try to be everything to everyone usually lose their edge in their core business.

Answer:  E

Diff: 3     Type: MC

Skill:  Analysis

 

 

5) ValueNet Corporation sells electronic learning devices, consumer electronics products, and collectibles directly to consumers using a team of telemarketers. The aggressive cold calling tactics recently boomeranged when the company became the target of irritated consumers and consumer activist groups who flooded ValueNet’s phone system with return calls and messages. Management is planning to reduce the reliance on outbound calling and use other approaches like direct-response television (infomercials).

 

Which of the following, if true, would strengthen the argument for shifting to direct-response television marketing?

  1. A) Many mainstream companies such as P&G, Dell, Disney, and Bose have begun using infomercials to sell their wares.
  2. B) ValueNet could slightly modify its telemarketing techniques and receive a much better customer response.
  3. C) TV media production costs are expected to increase substantially as the economy moves toward recovery.
  4. D) Many Canadians have registered their telephone numbers with the National Do Not Call Registry, and the number of registered numbers continues to grow.
  5. E) Despite objections and angry responses to cold calls, total sales from telephone marketing have been steady over the years.

Answer:  D

Diff: 3     Type: MC

Skill:  Analysis

6) ValueNet Corporation sells electronic learning devices, consumer electronics products, and collectibles directly to consumers using a team of telemarketers. The aggressive cold calling tactics recently boomeranged when the company became the target of irritated consumers and consumer activist groups who flooded ValueNet’s phone system with return calls and messages. Management is planning to reduce the reliance on outbound calling and use other approaches like direct-response television (infomercials).

 

Which of the following, if true, would weaken the argument for shifting to direct-response television marketing?

  1. A) Most customers perceive infomercial sales tactics to be loud, aggressive, and questionable.
  2. B) Some companies have found it difficult to adopt a direct-response television strategy.
  3. C) Consumer behaviour is highly dependent on the state of the economy.
  4. D) New forms of direct marketing channels such as podcasting and iTV are experiencing exciting growth.
  5. E) ValueNet’s products could successfully be sold using multiple direct marketing methods.

Answer:  A

Diff: 3     Type: MC

Skill:  Analysis

 

 

7) West Coast Unlimited is a wholesaler that carries close to 20 000 products. The company has close to 3000 suppliers and sells its products mostly to business and institutional customers. The company markets its products by relying mainly on sales promotion and advertising. Faced with increasing costs, the company is looking at various ways to reduce expenses. West Coast Unlimited’s vice-president feels that the company should shift one of its major distribution centres to a low-rent, low-tax area.

 

Which of the following, if true, would weaken the vice-president’s argument?

  1. A) The low-rent, low-tax area is located farther from delivery sites.
  2. B) West Coast Unlimited’s competitors often place their distribution centres in relatively expensive locations.
  3. C) Better use of technology could reduce distribution costs more than a relocation could.
  4. D) Final customers are almost always unaware of the location of the wholesaler.
  5. E) Delayed shipments from suppliers are already creating problems for West Coast Unlimited’s distribution network.

Answer:  A

Diff: 3     Type: MC

Skill:  Analysis

8) West Coast Unlimited is a wholesaler that carries close to 20 000 products. The company has close to 3000 suppliers and sells its products mostly to business and institutional customers. The company markets its products by relying mainly on sales promotion and advertising. Faced with increasing costs, the company is looking at various ways to reduce expenses. West Coast Unlimited’s vice-president feels that the company should shift one of its major distribution centres to a low-rent, low-tax area.

 

Which of the following, if true, would strengthen the vice-president’s argument?

  1. A) West Coast Unlimited recently signed a long-term lease for the distribution centre’s current location.
  2. B) The percentage decrease in taxes is higher than the percentage decrease in rent.
  3. C) West Coast Unlimited’s competitors are also capable of moving to the low-rent, low-tax area.
  4. D) The political environment in the new area is stable, with no expected changes in tax policy.
  5. E) Changes in the macroeconomic environment may reduce costs associated with the current location.

Answer:  D

Diff: 3     Type: MC

Skill:  Analysis

 

 

9) West Coast Unlimited is a wholesaler that carries close to 20 000 products. The company has close to 3000 suppliers and sells its products mostly to business and institutional customers. The company markets its products by relying mainly on sales promotion and advertising. Faced with increasing costs, the company is looking at various ways to reduce expenses. West Coast Unlimited’s vice-president feels that the company should shift one of its major distribution centres to a low-rent, low-tax area.

A critic claimed that a business that neither manufactures nor sells directly is doomed because it is forced to compete exclusively on price. Which of the following is the best criticism of this argument?

  1. A) It ignores the fact that improvements in wholesaler efficiency are relatively easy to duplicate.
  2. B) It fails to demonstrate that traditional retailing businesses are also in jeopardy.
  3. C) It fails to recognize the possibility that wholesalers can add value to different partners in the supply chain.
  4. D) It does not specify how wholesalers can reduce costs most effectively.
  5. E) It does not account for the fact that wholesalers need to be large in order to take advantage of economies of scale.

Answer:  C

Diff: 3     Type: MC

Skill:  Analysis

10) Audio Corporation is a manufacturer of high-end audio recording devices and car stereo players. Its products are known for excellent craftsmanship and sound quality. The primary target market for the company is executives in the age group of 30 to 40. The company is in the process of reworking its media mix. It had traditionally relied on television to spread its message. However, with the advent of video-on-demand and DVR systems, ad-skipping has become common. Some managers in the decision-making team feel that the bulk of the advertising budget should be allocated to Internet advertising.

 

Which of the following, if true, would strengthen the argument for using television as the medium for the next campaign?

  1. A) A study shows that the bulk of television audiences are teenagers and people over 65.
  2. B) More than 43 percent of advertising dollars are spent on national and local television commercials versus 8 percent on Internet advertising.
  3. C) The number of video-on-demand viewers is expected to quadruple during the next five years.
  4. D) Increasingly, consumers are choosing not to watch ads.
  5. E) Effective television ads are still capable of holding the audience’s attention.

Answer:  E

Diff: 3     Type: MC

Skill:  Analysis

 

 

11) Audio Corporation is a manufacturer of high-end audio recording devices and car stereo players. Its products are known for excellent craftsmanship and sound quality. The primary target market for the company is executives in the age group of 30 to 40. The company is in the process of reworking its media mix. It had traditionally relied on television to spread its message. However, with the advent of video-on-demand and DVR systems, ad-skipping has become common. Some managers in the decision-making team feel that the bulk of the advertising budget should be allocated to Internet advertising.

 

A problem associated with Internet advertising is that the audience controls the exposure, so viewers are able to avoid unwanted ads. Which of the following is the best response to this criticism?

  1. A) Internet advertising allows target audiences to learn more about products that interest them.
  2. B) Exposure control is a problem associated with all media types.
  3. C) The ability to avoid unwanted ads is an important aspect of privacy.
  4. D) Audiences can be forced to watch the entire message using technology.

 

  1. E) Internet advertising is too new to evaluate its effectiveness.

Answer:  A

Diff: 3     Type: MC

Skill:  Analysis

12) Audio Corporation is a manufacturer of high-end audio recording devices and car stereo players. Its products are known for excellent craftsmanship and sound quality. The primary target market for the company is executives in the age group of 30 to 40. The company is in the process of reworking its media mix. It had traditionally relied on television to spread its message. However, with the advent of video-on-demand and DVR systems, ad-skipping has become common. Some managers in the decision-making team feel that the bulk of the advertising budget should be allocated to Internet advertising.

 

Which of the following, if true, would most seriously weaken the argument for using the Internet as the medium of advertising?

  1. A) Countries with restrictive regimes are yet to free this medium from controls over political content.
  2. B) Consumers are extremely frustrated with annoying pop-up ads that affect the quality of browsing.
  3. C) Studies show that customers tend not to notice Internet ads that are not intrusive in nature.
  4. D) The interactive capabilities of Internet ads are rarely being used in a creative manner.
  5. E) People who are online are also known to engage in media multitasking.

Answer:  C

Diff: 3     Type: MC

Skill:  Analysis

 

 

13) Riverdale Inc. is a multiplatform retailer that does business primarily through direct mail marketing. The company sells approximately 400 products including statues, die-cast vehicles, T-shirts, posters and lithographs, plush toys, and household decorative items. Riverdale management is exploring ways of improving its direct marketing mechanism.

 

Which of the following, if true, would most strengthen the argument for continuing direct mail marketing?

  1. A) The consumers that direct mail marketing reaches are much better prospects compared to those reached by advertising.
  2. B) Direct mail marketing accounts for 34 percent of all direct marketing spending.
  3. C) Direct mail marketing has proven to be successful for promoting certain product types, such as cosmetics and designer apparel.
  4. D) The growth of direct mail marketing has been explosive, with customers being flooded with such material.
  5. E) Telephone marketing, another form of direct marketing, is becoming easier to use due to auto-dialers.

Answer:  A

Diff: 3     Type: MC

Skill:  Analysis

14) Riverdale Inc. is a multiplatform retailer that does business primarily through direct mail marketing. The company sells approximately 400 products including statues, die-cast vehicles, T-shirts, posters and lithographs, plush toys, and household decorative items. Riverdale management is exploring ways of improving its direct marketing mechanism.

 

Which of the following, if true, would most weaken the argument for continuing direct mail marketing?

  1. A) Riverdale will have to use highly selective mailing lists to ensure that its messages reach the target audience.
  2. B) Some analysts predict a decline in the use of traditional forms of direct mail in coming years.
  3. C) Competitors are using more aggressive and often more intrusive direct marketing techniques.
  4. D) Results of the program will have to be evaluated and monitored continuously in order to reduce costs.
  5. E) Direct mail marketing costs much more per thousand people reached than mass media outlets such as television or magazines.

Answer:  E

Diff: 3     Type: MC

Skill:  Analysis

 

 

15) Riverdale Inc. is a multiplatform retailer that does business primarily through direct mail marketing. The company sells approximately 400 products including statues, die-cast vehicles, T-shirts, posters and lithographs, plush toys, and household decorative items. Riverdale management is exploring ways of improving its direct marketing mechanism.

 

Which of the following, if true, would most weaken the argument for using email for direct mail marketing?

  1. A) Growth in the use of email for direct marketing is uncertain.
  2. B) Studies show that a large percentage of such emails go directly to customers’ spam folders.
  3. C) Riverdale has traditionally used catalogues for its direct marketing efforts.
  4. D) Not everyone who has used this medium for direct marketing has been successful.
  5. E) Only interested customers will go through such messages in great detail.

Answer:  B

Diff: 3     Type: MC

Skill:  Analysis

16) Riverdale Inc. is a multiplatform retailer that does business primarily through direct mail marketing. The company sells approximately 400 products including statues, die-cast vehicles, T-shirts, posters and lithographs, plush toys, and household decorative items. Riverdale management is exploring ways of improving its direct marketing mechanism.

 

One manager argues that Riverdale’s corporate image will suffer if customers receive too many emails about its different services and offerings. Which of the following, if true, is the most effective counterargument?

  1. A) Customers can report the emails as spam and ensure that they do not receive these service mails in their inboxes in the future.
  2. B) Research shows that customers who opt to receive marketing emails rarely complain, even if they are not happy about them.
  3. C) This is a problem that affects all email marketers, not Riverdale alone.
  4. D) Customers can use a ready menu of email selections to opt in and receive only the marketing product information they are interested in.
  5. E) The cost of email marketing is lower than public service advertising.

Answer:  D

Diff: 3     Type: MC

Skill:  Analysis

 

 

17) Frisell says: The most important online threat facing us today is identity theft. Consumers have to rely on online shopping today more than ever, and they are exposed to all kinds of dangers by people gaining access to credit cards, bank information, and Social Security numbers. Identity theft is a lucrative “business,” and identity thieves will keep finding new ways to rip off consumers as long as online shopping and transactions are widespread.

 

Scofield responds: Consumers have suffered from online theft, but the most far-reaching danger to people today from the Internet is viruses and malware. These have the capacity to take down entire networks, affecting both businesses and consumers. It’s not clear that anti-virus measures will ever be able to keep up with all of the threats that are out there.

 

Which of the following is the point at issue between Frisell and Scofield?

  1. A) Whether malicious online activities continue to pose a major threat to computer users
  2. B) Whether most computer users are sufficiently conscious of the online threats that are present
  3. C) Whether identity theft or viruses are the bigger online threat
  4. D) Whether businesses are significantly affected by online fraud
  5. E) Whether consumers are significantly affected by online fraud

Answer:  C

Diff: 3     Type: MC

Skill:  Analysis

18) Frisell says: The most important online threat facing us today is identity theft. Consumers have to rely on online shopping today more than ever, and they are exposed to all kinds of dangers by people gaining access to credit cards, bank information, and Social Security numbers. Identity theft is a lucrative “business,” and identity thieves will keep finding new ways to rip off consumers as long as online shopping and transactions are widespread.

 

Scofield responds: Consumers have suffered from online theft, but the most far-reaching danger to people today from the Internet is viruses and malware. These have the capacity to take down entire networks, affecting both businesses and consumers. It’s not clear that anti-virus measures will ever be able to keep up with all of the threats that are out there.

 

Frisell’s claim assumes which of the following?

  1. A) Most consumers prefer to shop online rather than at a traditional physical store.
  2. B) Identity thieves will continue to be motivated to steal people’s identities.
  3. C) Most identity theft occurs because consumers do not take sufficient safety measures.
  4. D) Identity theft mainly occurs as a result of spyware.
  5. E) It takes hundreds of hours for consumers to repair the effects of identity theft.

Answer:  B

Diff: 3     Type: MC

Skill:  Analysis

 

 

19) Frisell says: The most important online threat facing us today is identity theft. Consumers have to rely on online shopping today more than ever, and they are exposed to all kinds of dangers by people gaining access to credit cards, bank information, and Social Security numbers. Identity theft is a lucrative “business,” and identity thieves will keep finding new ways to rip off consumers as long as online shopping and transactions are widespread.

 

Scofield responds: Consumers have suffered from online theft, but the most far-reaching danger to people today from the Internet is viruses and malware. These have the capacity to take down entire networks, affecting both businesses and consumers. It’s not clear that anti-virus measures will ever be able to keep up with all of the threats that are out there.

 

Scofield’s claim assumes which of the following?

  1. A) Viruses can be spread through various parts of a network.
  2. B) Current anti-virus measures are adequate to deal with current threats.
  3. C) Consumers are sufficiently aware of the importance of keeping their systems virus-free.
  4. D) Businesses are sufficiently aware of the importance of keeping their systems virus-free.
  5. E) Identity thieves do not use malware to steal consumers’ identities.

Answer:  A

Diff: 3     Type: MC

Skill:  Analysis

20) Frisell says: The most important online threat facing us today is identity theft. Consumers have to rely on online shopping today more than ever, and they are exposed to all kinds of dangers by people gaining access to credit cards, bank information, and Social Security numbers. Identity theft is a lucrative “business,” and identity thieves will keep finding new ways to rip off consumers as long as online shopping and transactions are widespread.

 

Scofield responds: Consumers have suffered from online theft, but the most far-reaching danger to people today from the Internet is viruses and malware. These have the capacity to take down entire networks, affecting both businesses and consumers. It’s not clear that anti-virus measures will ever be able to keep up with all of the threats that are out there.

 

Which of the following statements would Frisell most likely agree with?

  1. A) Encryption software is the only way to protect consumers’ identities.
  2. B) Viruses do not pose a major problem to online security.
  3. C) People have more choices in online shopping now than they used to.
  4. D) Consumers should regularly check their credit reports and transactions.
  5. E) Identity theft has always been a problem for consumers.

Answer:  D

Diff: 3     Type: MC

Skill:  Analysis

 

 

21) Frisell says: The most important online threat facing us today is identity theft. Consumers have to rely on online shopping today more than ever, and they are exposed to all kinds of dangers by people gaining access to credit cards, bank information, and Social Security numbers. Identity theft is a lucrative “business,” and identity thieves will keep finding new ways to rip off consumers as long as online shopping and transactions are widespread.

 

Scofield responds: Consumers have suffered from online theft, but the most far-reaching danger to people today from the Internet is viruses and malware. These have the capacity to take down entire networks, affecting both businesses and consumers. It’s not clear that anti-virus measures will ever be able to keep up with all of the threats that are out there.

 

Which of the following statements would Scofield most likely agree with?

  1. A) Anti-virus software ought to be continually improved.
  2. B) There are not enough networks to support current web traffic.
  3. C) Most computer users use anti-virus software of some form or another.
  4. D) Consumers should not be particularly worried about identity theft.
  5. E) Malware mostly comes in the form of Trojan horses.

Answer:  A

Diff: 3     Type: MC

Skill:  Analysis

 

13.3   True/False Questions

 

1) A corporation which has an objective of achieving a high market share will almost always have a second objective to maximize profits.

Answer:  FALSE

Diff: 2     Type: TF     Page Ref: 319

Skill:  Comprehension

Objective:  13.1

2) Two major objectives of pricing are maximization of profit and achieving market share.

Answer:  TRUE

Diff: 1     Type: TF     Page Ref: 319

Skill:  Knowledge

Objective:  13.1

 

3) Coke has discovered that it can charge more for a can of soda in the sportswear aisle of Walmart than in the beverage aisle near competing colas. This is an example of a market share pricing objective.

Answer:  FALSE

Diff: 2     Type: TF     Page Ref: 319

Skill:  Comprehension

Objective:  13.1

 

 

4) Cost-oriented pricing of products focuses primarily on the supply and demand for the product at various prices.

Answer:  FALSE

Diff: 2     Type: TF     Page Ref: 319

Skill:  Comprehension

Objective:  13.1

 

5) A good example of cost-oriented pricing is theatre ticket prices for Hollywood films.

Answer:  FALSE

Diff: 3     Type: TF     Page Ref: 319

Skill:  Comprehension

Objective:  13.1

 

6) The markup percentage is determined by dividing the markup by the sales price.

Answer:  TRUE

Diff: 3     Type: TF     Page Ref: 320

Skill:  Comprehension

Objective:  13.1

 

7) If a retailer buys shirts for $8 from a supplier and then sells them for $15 to customers, the markup percentage is 87.5 percent.

Answer:  FALSE

Diff: 3     Type: TF     Page Ref: 320

Skill:  Comprehension

Objective:  13.1

 

8) A break-even analysis is used to determine how many units of a product must be sold at a given price before the company begins to make a profit.

Answer:  TRUE

Diff: 2     Type: TF     Page Ref: 320

Skill:  Knowledge

Objective:  13.1

 

9) A retail seller of music would like to hit the break-even point as late as possible so profits will be maximized.

Answer:  FALSE

Diff: 1     Type: TF     Page Ref: 320

Skill:  Comprehension

Objective:  13.1

10) The formula for determining the break-even point (in units) is total fixed costs divided by price minus variable cost.

Answer:  TRUE

Diff: 2     Type: TF     Page Ref: 320

Skill:  Knowledge

Objective:  13.1

 

 

11) If total fixed costs are $200 000, the product is sold for $30, and the variable cost is $16, the break-even point is 14 286 units.

Answer:  TRUE

Diff: 2     Type: TF     Page Ref: 320

Skill:  Application

Objective:  13.1

 

12) If total fixed costs are $200 000, the product is sold for $20, and the variable cost is $5, the break-even point is 10 000 units.

Answer:  FALSE

Diff: 2     Type: TF     Page Ref: 320

Skill:  Application

Objective:  13.1

 

13) Pricing new products is usually a choice between skimming and penetration.

Answer:  TRUE

Diff: 2     Type: TF     Page Ref: 321

Skill:  Knowledge

Objective:  13.2

 

14) Price lining is a tactic used for new products and requires that prices be set very high to cover product development and introduction costs.

Answer:  FALSE

Diff: 3     Type: TF     Page Ref: 322

Skill:  Comprehension

Objective:  13.2

 

15) Price lining is the practice of pricing goods slightly under a whole dollar amount (e.g., $9.95, $1.95).

Answer:  FALSE

Diff: 1     Type: TF     Page Ref: 322

Skill:  Knowledge

Objective:  13.2

 

16) A company which sets prices above the market rate plays on the consumer’s belief that higher prices mean higher quality products.

Answer:  TRUE

Diff: 2     Type: TF     Page Ref: 321

Skill:  Comprehension

Objective:  13.2

17) When Carbonite Inc. started its new online backup service, it charged “one flat low price no matter how much you need to back up your PC files.” This is an example of price skimming.

Answer:  FALSE

Diff: 1     Type: TF     Page Ref: 321

Skill:  Comprehension

Objective:  13.2

 

18) Dynamic pricing is feasible in the electronic marketplace because the flow of information on the Internet notifies millions of buyers of instantaneous changes in product availability.

Answer:  TRUE

Diff: 1     Type: TF     Page Ref: 321

Skill:  Comprehension

Objective:  13.2

 

19) Psychological pricing assumes that consumers make rational decisions when purchasing products.

Answer:  FALSE

Diff: 1     Type: TF     Page Ref: 322

Skill:  Comprehension

Objective:  13.2

 

20) The two general values to be gained from any promotional activity are communicating information and creating satisfying exchanges.

Answer:  TRUE

Diff: 2     Type: TF     Page Ref: 322

Skill:  Knowledge

Objective:  13.3

 

21) The ultimate objective of any promotion is to sell more products.

Answer:  TRUE

Diff: 1     Type: TF     Page Ref: 322

Skill:  Knowledge

Objective:  13.3

 

22) A push strategy appeals directly to consumers who “push” their local retailer to carry the product.

Answer:  FALSE

Diff: 1     Type: TF     Page Ref: 322

Skill:  Knowledge

Objective:  13.3

 

23) It has been shown that a pull strategy is generally more effective than a push strategy because a pull strategy shows that consumers actually want the product.

Answer:  FALSE

Diff: 1     Type: TF     Page Ref: 322

Skill:  Comprehension

Objective:  13.3

 

24) Makers of industrial products most often use a push strategy, while makers of consumer products often use a push strategy.

Answer:  TRUE

Diff: 2     Type: TF     Page Ref: 322

Skill:  Knowledge

Objective:  13.3

 

25) The combination of media that a company chooses to advertise its products is called its promotional mix.

Answer:  FALSE

Diff: 2     Type: TF     Page Ref: 323

Skill:  Knowledge

Objective:  13.4

 

26) Television is a good medium to use if a company wants to educate viewers about complex products.

Answer:  FALSE

Diff: 2     Type: TF     Page Ref: 323-324

Skill:  Comprehension

Objective:  13.4

 

27) Newspapers, as an advertising medium, offer flexible, rapid coverage, but usually do not allow advertisers to target their audience well.

Answer:  TRUE

Diff: 1     Type: TF     Page Ref: 324

Skill:  Knowledge

Objective:  13.4

 

28) The largest percentage of advertising dollars is spent on newspaper advertising.

Answer:  FALSE

Diff: 1     Type: TF     Page Ref: 324

Skill:  Knowledge

Objective:  13.4

 

29) One advantage of radio advertisements is that many people use the radio as “background” so they hear many advertisements.

Answer:  FALSE

Diff: 1     Type: TF     Page Ref: 324

Skill:  Knowledge

Objective:  13.4

 

30) One advantage of using magazine advertisements is that magazines represent a market that has already been segmented.

Answer:  TRUE

Diff: 1     Type: TF     Page Ref: 324

Skill:  Knowledge

Objective:  13.4

 

31) Spending on television advertising in Canada in 2014 totalled about $3.4 billion.

Answer:  TRUE

Diff: 3     Type: TF     Page Ref: 324

Skill:  Knowledge

Objective:  13.4

32) A silverware company would be smart to advertise in bridal magazines.

Answer:  TRUE

Diff: 1     Type: TF     Page Ref: 324

Skill:  Comprehension

Objective:  13.4

 

33) Online advertising revenues may soon surpass those generated by television.

Answer:  TRUE

Diff: 1     Type: TF     Page Ref: 324

Skill:  Knowledge

Objective:  13.4

 

34) Online advertising is more advantageous for buyers than for sellers.

Answer:  FALSE

Diff: 2     Type: TF     Page Ref: 324

Skill:  Comprehension

Objective:  13.4

 

35) Personal selling provides the link between seller and buyer, which adds to a firm’s credibility.

Answer:  TRUE

Diff: 1     Type: TF     Page Ref: 326-327

Skill:  Knowledge

Objective:  13.5

 

36) The average cost of an industrial sales call has been estimated at $800 to $1000.

Answer:  FALSE

Diff: 2     Type: TF     Page Ref: 327

Skill:  Knowledge

Objective:  13.5

 

37) Premiums are gifts, such as pens, pencils, calendars, or coffee mugs that are given away in return for buying a specific product.

Answer:  TRUE

Diff: 2     Type: TF     Page Ref: 327

Skill:  Knowledge

Objective:  13.5

 

 

38) Premiums grab customers’ attention and eliminate competitive products from consideration.

Answer:  FALSE

Diff: 2     Type: TF     Page Ref: 327

Skill:  Knowledge

Objective:  13.5

 

39) Generally speaking, the most effective sales promotion tool is free samples.

Answer:  FALSE

Diff: 2     Type: TF     Page Ref: 327

Skill:  Comprehension

Objective:  13.5

40) Publicity and public relations are important tools in making the buyer aware that the firm’s product exists, especially when the buyer is in the information seeking stage of the buying process.

Answer:  TRUE

Diff: 1     Type: TF     Page Ref: 327

Skill:  Comprehension

Objective:  13.5

 

41) Publicity is company-influenced publicity that seeks to build good relations with the public and to deal with the effects of unfavourable events.

Answer:  FALSE

Diff: 2     Type: TF     Page Ref: 327

Skill:  Knowledge

Objective:  13.5

 

42) Most large and successful companies do not have a department to manage their relations with the public since they already have a positive company image.

Answer:  FALSE

Diff: 2     Type: TF     Page Ref: 328

Skill:  Comprehension

Objective:  13.5

 

43) Eliminating intermediaries in the channel of distribution means that prices to consumers decline because the intermediaries no longer need to be paid.

Answer:  FALSE

Diff: 2     Type: TF     Page Ref: 329

Skill:  Comprehension

Objective:  13.6

 

44) Channels of distribution always contain a manufacturer and an end user.

Answer:  TRUE

Diff: 2     Type: TF     Page Ref: 329

Skill:  Knowledge

Objective:  13.6

 

 

45) All things considered, the direct distribution channel is usually the best one because there are the fewest intermediaries.

Answer:  FALSE

Diff: 2     Type: TF     Page Ref: 329

Skill:  Comprehension

Objective:  13.6

 

46) Intermediaries are not necessary when people sell things on websites like eBay.

Answer:  FALSE

Diff: 3     Type: TF     Page Ref: 329

Skill:  Comprehension

Objective:  13.6

47) Like merchant wholesalers, agents or brokers take title to the goods, but they just don’t take actual possession of the goods.

Answer:  FALSE

Diff: 2     Type: TF     Page Ref: 329

Skill:  Knowledge

Objective:  13.7

 

48) Agent/brokers are employees of the manufacturer.

Answer:  FALSE

Diff: 2     Type: TF     Page Ref: 330

Skill:  Knowledge

Objective:  13.7

 

49) The two major aspects of physical distribution are warehousing and transportation.

Answer:  TRUE

Diff: 1     Type: TF     Page Ref: 333

Skill:  Knowledge

Objective:  13.8

 

50) The key factor for selecting the appropriate transportation method is cost.

Answer:  TRUE

Diff: 2     Type: TF     Page Ref: 333

Skill:  Knowledge

Objective:  13.8

 

51) The principal difference in costs among trucks, railroads, planes, ships, and pipelines is directly related to the safety of delivery.

Answer:  FALSE

Diff: 2     Type: TF     Page Ref: 333

Skill:  Knowledge

Objective:  13.8

 

 

52) Flexibility, fast service, and dependability are attributes of shipping by truck.

Answer:  TRUE

Diff: 1     Type: TF     Page Ref: 333

Skill:  Knowledge

Objective:  13.8

 

53) All things considered, trucks are the best method of transportation.

Answer:  FALSE

Diff: 2     Type: TF     Page Ref: 333

Skill:  Comprehension

Objective:  13.8

 

54) Water carriers are the cheapest and slowest method of transportation and are used primarily for large quantities of bulky material.

Answer:  TRUE

Diff: 2     Type: TF     Page Ref: 333

Skill:  Knowledge

Objective:  13.8

55) Due to an excellent transportation network in Canada, transportation costs are a minor factor when determining the method to be used to move goods from one location to another.

Answer:  FALSE

Diff: 2     Type: TF     Page Ref: 333

Skill:  Comprehension

Objective:  13.8

 

13.4   Short Answer Questions

 

1) What are pricing objectives?

Answer:  Pricing objectives are goals that producers hope to attain in pricing products for sale.

Diff: 2     Type: SA     Page Ref: 319

Skill:  Comprehension

Objective:  13.1

 

2) What tools are used by the marketing managers to determine prices of products?

Answer:  Cost-oriented pricing and break-even analysis can be used.

Diff: 1     Type: SA     Page Ref: 319-320

Skill:  Knowledge

Objective:  13.1

 

3) Identify the two most common pricing objectives.

Answer:  Profit maximization and market share

Diff: 2     Type: SA     Page Ref: 319

Skill:  Knowledge

Objective:  13.1

 

 

4) What is a markup?

Answer:  A markup is an amount added to an item’s cost to sell it at a profit.

Diff: 2     Type: SA     Page Ref: 320

Skill:  Comprehension

Objective:  13.1

 

5) How is the markup percentage calculated? Give an example.

Answer:  The markup percentage is calculated by dividing the markup amount by the selling price. For example, if a music stores buys DVD’s for $8 and sells them for $15, the markup percentage is $7/$15 = 46.7 percent.

Diff: 2     Type: SA     Page Ref: 320

Skill:  Comprehension

Objective:  13.1

 

6) ABC Company sells product X for $12.00 each. With a fixed cost of $72 000 and a variable cost of $4.50, what is the break-even point in units?

Answer:  $72 000/($12 – $4.50) = 9600 units.

Diff: 2     Type: SA     Page Ref: 320

Skill:  Application

Objective:  13.1

 

7) What is the formula for computing the break-even point?

Answer:  The break-even point = total fixed costs divided by (price minus variable cost).

Diff: 2     Type: SA     Page Ref: 320

Skill:  Knowledge

Objective:  13.1

8) What is the difference between fixed costs and variable costs?

Answer:  Fixed costs remain constant with varying levels of production or sales. Variable costs change with the quantity of a product produced or sold. Examples of fixed costs include rent, insurance, and utilities, whereas examples of variable costs include those for raw materials, sales commissions, and shipping.

Diff: 2     Type: SA     Page Ref: 320

Skill:  Knowledge

Objective:  13.1

 

9) List three options for pricing existing products.

Answer:  Pricing above market prices, pricing below market prices, and pricing at or near market prices

Diff: 2     Type: SA     Page Ref: 321

Skill:  Knowledge

Objective:  13.2

 

 

10) List two strategies for pricing new products.

Answer:  Price skimming and penetration pricing

Diff: 2     Type: SA     Page Ref: 321

Skill:  Knowledge

Objective:  13.2

 

11) What pricing objectives are implied by penetration and skimming?

Answer:  The profit objective of market share is implied by penetration pricing, while the profit maximization objective is implied by price skimming.

Diff: 2     Type: SA     Page Ref: 321

Skill:  Comprehension

Objective:  13.2

 

12) What is price lining?

Answer:  Price lining is setting a limited number of prices for certain categories of products.

Diff: 2     Type: SA     Page Ref: 322

Skill:  Comprehension

Objective:  13.2

 

13) List three pricing tactics.

Answer:  Price lining, psychological pricing, and discounting

Diff: 1     Type: SA     Page Ref: 321-322

Skill:  Knowledge

Objective:  13.2

 

14) What is the idea behind odd-even pricing?

Answer:  The idea is that consumers prefer prices that are not stated in even dollar amounts. Thus, customers may regard a price of $100.00 as significantly higher than a price of $99.95.

Diff: 1     Type: SA     Page Ref: 322

Skill:  Comprehension

Objective:  13.2

 

15) What are the two general values to be gained from any promotional campaign?

Answer:  Communicating information and creating more satisfying exchanges

Diff: 2     Type: SA     Page Ref: 322

Skill:  Knowledge

Objective:  13.3

16) List three promotional objectives (other than increasing sales).

Answer:  To increase consumer awareness of products, to make consumers more knowledgeable about product features, and to persuade consumers to prefer a specific brand

Diff: 2     Type: SA     Page Ref: 322

Skill:  Knowledge

Objective:  13.3

 

 

17) What is the promotional mix? What are the elements in the promotional mix?

Answer:  The promotional mix is the combination of tools used to promote a product. The elements in the promotional mix are advertising, personal selling, sales promotions, and publicity/public relations.

Diff: 2     Type: SA     Page Ref: 322-323

Skill:  Comprehension

Objective:  13.3

 

18) List the seven primary advertising media.

Answer:  Television, newspapers, direct mail, radio, magazines, outdoor, and Internet advertising

Diff: 2     Type: SA     Page Ref: 324

Skill:  Knowledge

Objective:  13.4

 

19) What is personal selling?

Answer:  Personal selling is a promotional tool in which a salesperson communicates one-on-one with potential customers.

Diff: 2     Type: SA     Page Ref: 326-327

Skill:  Comprehension

Objective:  13.5

 

20) List five sales promotion tools.

Answer:  Coupons, point-of-purchase displays, purchasing incentives (free samples and premiums), trade shows, and contests and sweepstakes

Diff: 2     Type: SA     Page Ref: 327

Skill:  Knowledge

Objective:  13.5

 

21) What is the purpose of point-of-sale displays?

Answer:  POS displays make it easier for customers to find products and easier for sellers to eliminate competitors from consideration.

Diff: 2     Type: SA     Page Ref: 327

Skill:  Comprehension

Objective:  13.5

 

22) What is publicity?

Answer:  Publicity is a promotional tool in which information about a company or product is transmitted by general mass media.

Diff: 2     Type: SA     Page Ref: 327

Skill:  Comprehension

Objective:  13.5

 

23) What is public relations?

Answer:  Public relations is company-influenced publicity directed at building goodwill with the public or dealing with favorable events.

Diff: 2     Type: SA     Page Ref: 328

Skill:  Comprehension

Objective:  13.5

 

24) What is the difference between coupons and premiums?

Answer:  Coupons use certificates entitling buyers to discounts in order to encourage customers to try new products, lure them away from competitors, or induce them to buy more of a product. Premiums are free or reduced-price items, such as pencils, coffee mugs, and six-month low-interest credit cards, given to consumers in return for buying a specified product.

Diff: 2     Type: SA     Page Ref: 327

Skill:  Comprehension

Objective:  13.5

 

25) What is public relations?

Answer:  The distribution mix is the combination of distribution channels by which a firm gets its products to end users.

Diff: 2     Type: SA     Page Ref: 329

Skill:  Comprehension

Objective:  13.6

 

26) Why has channel 3 (wholesale distribution) gained in popularity?

Answer:  The increased cost of retail store space motivated retailers to use wholesalers to storage quantities of products.

Diff: 2     Type: SA     Page Ref: 329

Skill:  Comprehension

Objective:  13.6

 

27) What is a direct channel?

Answer:  A direct channel is a distribution channel in which a product travels from producer to consumer without intermediaries.

Diff: 2     Type: SA     Page Ref: 329

Skill:  Comprehension

Objective:  13.6

 

28) List the three degrees of market coverage.

Answer:  Intensive, exclusive, and selective distribution

Diff: 2     Type: SA     Page Ref: 330

Skill:  Knowledge

Objective:  13.6

 

 

29) What is a channel captain?

Answer:  A channel captain is the channel member who is the most powerful in determining the roles and rewards of other members.

Diff: 2     Type: SA     Page Ref: 330

Skill:  Comprehension

Objective:  13.6

30) Identify three services provided by full-service merchant wholesalers.

Answer:  Credit, storage, marketing, delivery, product information, and merchandising services such as marking prices and setting up displays

Diff: 2     Type: SA     Page Ref: 330

Skill:  Knowledge

Objective:  13.7

 

31) List three types of intermediaries.

Answer:  Wholesalers, retailers, agents/brokers

Diff: 2     Type: SA     Page Ref: 330-331

Skill:  Knowledge

Objective:  13.7

 

32) List three basic types of bricks-and-mortar retail outlets.

Answer:  Product line retailers, bargain retailers, and convenience stores

Diff: 2     Type: SA     Page Ref: 332

Skill:  Knowledge

Objective:  13.7

 

33) List four types of product line retailers.

Answer:  Department stores, supermarkets, specialty stores, and category killers

Diff: 2     Type: SA     Page Ref: 332

Skill:  Knowledge

Objective:  13.7

 

34) List three types of bargain retailers.

Answer:  Discount stores, factory outlets, and wholesale clubs

Diff: 2     Type: SA     Page Ref: 332

Skill:  Knowledge

Objective:  13.7

 

35) List three forms of direct response retailing.

Answer:  Mail order (catalogue) marketing, telemarketing, direct selling, and video/TV (lets viewers shop at home from special channels on their TVs)

Diff: 2     Type: SA     Page Ref: 331-332

Skill:  Knowledge

Objective:  13.7

 

 

36) What do e-intermediaries do?

Answer:  They help Internet customers by gathering and sorting information.

Diff: 2     Type: SA     Page Ref: 332

Skill:  Comprehension

Objective:  13.7

 

37) List one advantage and one disadvantage of using trucks for transportation.

Answer:  The advantages of trucks include flexibility for any-distance distribution, fast service, and dependability. A disadvantage is increasing truck traffic raising safety and courtesy concerns.

Diff: 2     Type: SA     Page Ref: 333

Skill:  Comprehension

Objective:  13.8

38) List the advantages of planes as a mode of transportation.

Answer:  Speed and lower handling and packaging costs

Diff: 2     Type: SA     Page Ref: 333

Skill:  Knowledge

Objective:  13.8

 

39) Why is water the least expensive mode of transportation?

Answer:  Networks of waterways, oceans, rivers, and lakes let water carriers reach many areas throughout the world. Boats and barges are used mostly for moving bulky products. Unfortunately, water is one of the slowest modes of transportation. Speed of delivery is a major factor when considering the cost of transporting physical goods-air is the fastest and most expensive, whereas water is the slowest and least expensive.

Diff: 2     Type: SA     Page Ref: 333

Skill:  Knowledge

Objective:  13.8

 

40) Describe the advantages of pipelines as a mode of transportation.

Answer:  Their ability to transport liquids and gases, and their independence from weather conditions

Diff: 2     Type: SA     Page Ref: 333

Skill:  Knowledge

Objective:  13.8

 

13.5   Essay Questions

 

1) What are the various business objectives that influence pricing decisions?

Answer:  Objectives include maximizing profits, securing a high market share, survival in a competitive marketplace, adherence to social and ethical concerns, and improving corporate image.

Diff: 2     Type: ES     Page Ref: 319

Skill:  Comprehension

Objective:  13.1

 

 

2) What is the difference between a profit maximization objective and a market share objective?

Answer:  With a profit maximization objective, prices are set in such a way as to maximize the profit a company makes. In a market share objective, profit is not the major consideration. Indeed, a company may sacrifice profits (at least in the short-run) by reducing prices in an attempt to gain a larger share of the customers in a given market.

Diff: 2     Type: ES     Page Ref: 319

Skill:  Comprehension

Objective:  13.1

 

3) Why might a company adopt a pricing objective other than profit maximization?

Answer:  Sometimes a firm may value establishing market share over making immediate profits. Companies may set an initially lower price to get buyers to try products. In such a case, the firm would defer profits to a later time. In addition, companies are also influenced by the need to compete in the marketplace, by social and ethical concerns, and by corporate image.

Diff: 3     Type: ES     Page Ref: 319

Skill:  Comprehension

Objective:  13.1

4) Bill and Farrah have been recently hired by Superior Stereo Systems, a cutting-edge manufacturer of stereo speakers. They have been assigned to work on a product team for the Superior V, an existing product, and the Superior VI, a brand new speaker technology. The team is reviewing the pricing strategy used to this point. Bill insists that they should price the speakers to maximize profits. He explains, “It is basic economics: companies price their products to maximize profits. There’s no question, this is the strategy that we should use.” Farrah, remembering what she learned in her marketing courses, isn’t so sure that Bill is right. The technical specifications of the Superior VI speakers have been worked out, but the team is struggling with pricing. Some members of the group think that the new speakers should be priced higher than the Superior V, while others are arguing for a lower price. In the past, the price for the Superior V has been slightly higher than similar products offered by competitors. Why would a company use this strategy?

Answer:  Firms generally set prices above the market price to create the impression that the product with the higher price is of far greater quality. Superior Stereo Systems may be trying to convey a high-quality image for its products.

Diff: 3     Type: ES     Page Ref: 319-321

Skill:  Comprehension

Objective:  13.1

 

 

5) Farrah explains why Superior Stereo Systems might not want to set prices for the Superior V at a level that maximizes profits. What do you expect that Farrah will tell Bill?

Answer:  Farrah will likely explain that a firm may value establishing market share over making immediate profits. Companies may set an initially lower price to get buyers to try the product and gain market share. In such a case, the firm would defer profits to a later time. Pricing for market share also addresses practical concerns. Retailers are unlikely to stock an item with a very low share of the market. In addition, companies are also influenced by the need to compete in the marketplace, by social and ethical concerns, and by corporate image.

Diff: 3     Type: ES     Page Ref: 319-321

Skill:  Comprehension

Objective:  13.1

 

6) What would the argument for pricing the Superior VI lower than the Superior V be?

Answer:  Given that any new speaker system will be entering a well-populated market with a great deal of competition, it is incumbent for Superior Stereo Systems to penetrate the market with the Superior VI as quickly as possible. The best way of doing this is to sell it (at least, initially) at a lower price than the market demands. However, lowering the price of the older model correspondingly could possibly give the impression that this well-established product is of inferior quality than the rest of the speaker systems on the market. So, its price should remain higher than that of the newer Superior VI.

Diff: 3     Type: ES     Page Ref: 319-321

Skill:  Comprehension

Objective:  13.1

 

7) Why are the concepts of “fixed costs” and “variable costs” important?

Answer:  Fixed costs are those that are unaffected by the number of units of a product that are sold. Variable costs, however, do change based on the number of units that are sold. These two concepts are important in determining the break-even point.

Diff: 2     Type: ES     Page Ref: 320

Skill:  Comprehension

Objective:  13.1

8) Explain the various pricing philosophies and strategies for new and existing products.

Answer:  For existing products: set prices lower, same, higher, price leadership

For new products: price-skimming strategy, penetration-pricing strategy

Diff: 2     Type: ES     Page Ref: 321

Skill:  Comprehension

Objective:  13.2

 

 

9) What is the difference between fixed and dynamic pricing?

Answer:  The digital marketplace has introduced a highly variable (dynamic) pricing system as an alternative to conventional fixed pricing for both consumer and business-to-business (B2B) products. At present, fixed pricing is still the most common option for cybershoppers (e.g., Amazon.com has maintained this practice as its pricing strategy for its millions of retail items). In contrast, dynamic pricing, like eBay’s auction bidding, uses flexibility between buyers and sellers in setting a price and uses the web to instantly notify millions of buyers of product availability and price changes.

Diff: 2     Type: ES     Page Ref: 321

Skill:  Comprehension

Objective:  13.2

 

10) How are price lining and psychological pricing used to determine prices of products?

Answer:  Price lining is the practice of offering all items in certain categories at a limited number of predetermined price points. Psychological pricing is the practice of setting prices to take advantage of the nonlogical reactions of consumers to certain types of prices.

Diff: 2     Type: ES     Page Ref: 322

Skill:  Comprehension

Objective:  13.2

 

11) How is psychological pricing different from discounting?

Answer:  In psychological pricing, prices are set based on the notion that consumers may not be completely rational when making purchase decisions. For example, in odd-even pricing, a price of $99.95 may be seen as much lower than a price of $100.00. In discounting, prices are set based on the notion that consumers may buy more of a given product if they can get a lower price per unit. For example, customers may be attracted by quantity discounts because each of the multiple units of the product they buy is cheaper than if they just buy one unit.

Diff: 2     Type: ES     Page Ref: 322

Skill:  Comprehension

Objective:  13.2

 

12) Why might a retailer price a television at $299.99 rather than $300.00?

Answer:  Over the years, marketers have formed the opinion that consumers find $299.99 far more attractive than $300.00. Being of that opinion, marketers still use this form of psychological pricing, often called odd-even pricing.

Diff: 2     Type: ES     Page Ref: 322

Skill:  Comprehension

Objective:  13.2

13) Define and contrast the difference between pull and push strategies in marketing.

Answer:  With a pull promotional strategy, a company appeals directly to customers, who then demand the product from retailers, who then demand the product from wholesalers. With a push strategy, a company aggressively pushes its product through wholesalers and retailers, who then persuade customers to buy it.

Diff: 2     Type: ES     Page Ref: 322

Skill:  Comprehension

Objective:  13.3

 

14) Describe the elements of the promotional mix.

Answer:  The promotional mix consists of advertising, personal selling, sales promotions, and publicity and public relations. Advertising is paid, nonpersonal communications by which an identified sponsor informs an audience about a product. The combination of media through which a company advertises is called its media mix, comprised primarily of television, direct mail, newspapers, magazines, radio, the Internet, and outdoor advertising. In personal selling, a salesperson communicates one-to-one with potential customers to identify their needs and align them with the seller’s products. Salespeople typically function as order processors, receiving orders and seeing to their handling and delivery, or creative sellers, helping to persuade buyers to purchase by providing information and demonstrating the product’s benefits. Sales promotions are short-term promotional activities designed to encourage consumer buying; such promotions include coupons, premiums, point-of-sale displays, trade shows, and other gimmicks. Publicity, which is free, is thought of as “word-of-mouth” communications about the marketer and/or the products being offered. Public relations is company-influenced information that seeks either to build good relations with the public or to deal with unfavorable events. The nature of the product, the cost of each tool, the promotional budget, and the characteristics of the target audience will determine the most suitable combination for each stage of the product life cycle.

Diff: 3     Type: ES     Page Ref: 322-323

Skill:  Comprehension

Objective:  13.3

 

15) Superior Stereo Systems, a cutting-edge manufacturer of stereo speakers, sells the popular Superior V model and recently introduced the Superior VI, a brand-new speaker technology. The company’s marketing manager, Deanna Thorpe, is putting together the promotional campaign for Superior. What purposes of promotion should Deanna and her marketing team at Superior keep in mind?

Answer:  Deanna should keep the following purposes in mind: Promotion is primarily used to increase sales. In addition, marketers may use promotion to communicate information, position products, add value, and control sales volume. Promotion refers to techniques for communicating information about products and is part of the communication mix–the total message any company sends to customers about its product. Promotional techniques, especially advertising, must communicate the uses, features, and benefits of products, and marketers use an array of tools for this purpose.

Diff: 3     Type: ES     Page Ref: 322

Skill:  Comprehension

Objective:  13.3

 

16) What are Superior’s options in promoting the Superior VI?

Answer:  Superior will want to consider all of its promotional options. The four elements of the promotional mix are advertising, sales promotions, personal selling, and publicity and public relations. Because the plan is to sell products either through wholesalers or directly to retailers, personal selling is not appropriate. It is likely that the company will wish to employ a mix of advertising, sales promotion, and publicity and public relations. The best combination of these tools-the best promotional mix-depends on many factors, the most important of which is the target audience.

Diff: 3     Type: ES     Page Ref: 322-323

Skill:  Comprehension

Objective:  13.3

 

17) While the ultimate objective of any promotion is to increase sales, marketers may have other objectives. In particular, why would adding value to a product be seen as an important objective for a promotion team?

Answer:  By adding perceived value to a given product, promotion can distinguish that product in a positive light from a very large set of competitors, thus increasing reputation and consumer regard for both the product and the firm.

Diff: 3     Type: ES     Page Ref: 322

Skill:  Comprehension

Objective:  13.3

 

18) What is Internet marketing? What are some of the advantages and challenges for buyers and sellers of this advertising medium?

Answer:  Internet marketing refers to the promotional efforts of companies to sell their products and services to consumers over the Internet, and is the most recent advertising medium to arise.

– Advantages for buyers: Convenience, privacy, selection, useful information, and control (build custom products for themselves)

– Advantages for sellers: Reach, direct distribution, eliminating intermediaries, reduced expenses, flexibility, and feedback

– Challenges: Profitability problems, information overload, limited markets, and security related issues

Diff: 2     Type: ES     Page Ref: 324

Skill:  Comprehension

Objective:  13.4

 

 

19) Compare and contrast newspapers and television as advertising media.

Answer:  Newspapers offer excellent coverage (each local market typically has a daily newspaper), and many people read the paper each day. Coverage is flexible and rapid and advertisements can be changed frequently. But newspapers do not allow advertisers to target their audience very well, and newspapers have been declining in importance in recent years. Television allows advertisers to combine sight and sound and therefore appeals to viewers’ senses. Advertisers can promote to target audiences because of demographic data about which groups tend to watch which shows. But television has many commercials and they are expensive. Also, the increasing use of DVRs means that many advertisements are not watched.

Diff: 2     Type: ES     Page Ref: 324

Skill:  Comprehension

Objective:  13.4

20) Identify and briefly discuss five of the various advertising media.

Answer:

Newspapers – the most widely used advertising medium

Television – allows advertisers to combine sight, sound, and motion, thus appealing to almost all of the viewer’s senses

Direct mail – involves fliers or other types of printed advertisements mailed directly to consumers’ homes or places of business

Radio – relatively inexpensive and a tremendous number of people listen to the radio each day

Magazines – provides a high level of consumer selectivity

Outdoor – outdoor advertising/billboards, signs, and advertisements on buses, taxis and subways, relatively inexpensive, faces little competition for customers’ attention, and is subject to high repeat exposure

Word of mouth – opinions about the value of products passed among consumers in informal discussions

The Internet and virtual advertising

Diff: 2     Type: ES     Page Ref: 324

Skill:  Comprehension

Objective:  13.4

 

21) What are sales promotions?

Answer:  Sales promotions are short-term promotional activities designed to stimulate consumer buying or cooperation from distributors. They increase the likelihood that a consumer will buy more of the product, and they also enhance product recognition.

Diff: 2     Type: ES     Page Ref: 327

Skill:  Comprehension

Objective:  13.5

 

 

22) What are the advantages and disadvantages of public relations?

Answer:  If it is done well, public relations creates a very positive image for the company, and this image may translate into increased sales and profits. The disadvantage is that carrying out public relations activities costs the company money, and it is often unclear whether such activities have any effect on company sales. For example, when a company sponsors a high-profile athletic event, it may be difficult to measure the effect that the sponsorship had on sales.

Diff: 2     Type: ES     Page Ref: 328

Skill:  Comprehension

Objective:  13.5

 

23) What is the difference between publicity and public relations?

Answer:  Publicity is information about the company that is made available to consumers, typically in a news format. The company pays little or nothing for publicity. By contrast, public relations attempts to create goodwill between the company and its customers through public-service announcements or other activities that are designed to enhance to the company’s image (for example, sponsoring a sporting event). Public relations costs the company money.

Diff: 2     Type: ES     Page Ref: 327-328

Skill:  Comprehension

Objective:  13.5

24) A negative review of a new high-tech speaker system has been published in an influential magazine. How can the company that makes the speaker counter this negativity?

Answer:  Marketers usually have little control over publicity, but the company could create its own public relations campaign in order in an attempt to offset the bad publicity. It can spread public relations information that seeks to deal with the unfavorable event. The company may work to rebuild any lost customer goodwill by publicizing its focus on quality and on any increased efforts toward building quality into its products. In contrast to publicity, public relations is company-influenced information that seeks either to build good relations with the public (by publicizing the company’s charitable contributions, for example) or to deal with unfavorable events.

Diff: 2     Type: ES     Page Ref: 328

Skill:  Comprehension

Objective:  13.5

 

25) What is a trade show? How does a firm’s participation in a trade show serve to promote the firm’s products?

Answer:  A trade show is a sales promotion method in which members of a particular industry gather for displays and product demonstrations designed to sell products to customers. Trade shows are relatively inexpensive and are effective because the buyer comes to the seller already interested in a given type of product.

Diff: 2     Type: ES     Page Ref: 327

Skill:  Comprehension

Objective:  13.5

 

 

26) What are the advantages and disadvantages of publicity?

Answer:  The major advantage is that publicity is free. If something newsworthy happens that involves the company, that information will be conveyed to the public and the company doesn’t have to pay for it. The obvious downside is that the news about the company may be negative. A related problem is publicity on the Internet that the company doesn’t want (e.g., Playboy Playmate Kendra Wilkinson making positive comments about the restaurant chain Olive Garden).

Diff: 2     Type: ES     Page Ref: 327

Skill:  Comprehension

Objective:  13.5

 

27) List and briefly describe each of the five possible types of channel members.

Answer:  The five possible types of channel members are manufacturers (who produce the product or service), agents/brokers (who serve as sales and merchandising arms for producers who do not have their own salesforces), wholesalers (who sell products to other businesses for resale to final consumers), retailers (who sell products to consumers), and end users (the consumers who buy the products).

Diff: 2     Type: ES     Page Ref: 329

Skill:  Comprehension

Objective:  13.6

 

28) Briefly discuss each of the four channels of distribution.

Answer:

Channel 1: producer to end user

Channel 2: manufacturer to retailer to end user

Channel 3: manufacturer to wholesaler to retailer to end user

Channel 4: manufacturer to agents/brokers to end users

Diff: 3     Type: ES     Page Ref: 329

Skill:  Comprehension

Objective:  13.6

29) Explain the primary difference between a wholesaler and a sales agent.

Answer:  The primary difference is the role that each intermediary plays within the distribution mix. The wholesaler’s role is generally to distribute the product to any retailers that will buy it and resell it. In particular, wholesalers are only indirectly concerned with who the consumers of the product actually are. Sales agents, on the other hand, seek out the consumers for the product directly and negotiate the sales of the product as part of their commission. Thus, they have a more active role in finding and securing consumers for the product. Wholesale distribution and distribution by agents or brokers are two of the four popular distribution channels, along with direct distribution and retail distribution.

Diff: 3     Type: ES     Page Ref: 329

Skill:  Comprehension

Objective:  13.6

 

 

30) Explain the distribution mix and the role of intermediaries in the distribution mix.

Answer:  The distribution mix is the combination of distribution channels by which a firm gets products to end users. This includes both consumers and industrial buyers of products. The success of any product depends on its distribution mix. The role of intermediaries is important in the distribution mix; intermediaries help to distribute a producer’s goods, either by moving them or by providing information that stimulates their movement from sellers to customers. Two primary intermediaries are wholesalers and retailers. Wholesalers are intermediaries who sell products to other businesses for resale to final consumers; retailers sell products directly to consumers. Whereas some firms rely on independent intermediaries, others employ their own distribution networks and salesforces. Further, a distribution channel is the path that a product follows from producer to end user.

Diff: 3     Type: ES     Page Ref: 329-330

Skill:  Comprehension

Objective:  13.6

 

31) Explain the difference between exclusive, selective, and intensive distribution.

Answer:

Exclusive: a product’s distribution is limited to only one wholesaler/retailer in a given geographic area

Selective: falls between intensive and exclusive distribution, calling for the use of a limited number of outlets for a product

Intensive: a product’s distribution is to as many channel members as possible

Diff: 2     Type: ES     Page Ref: 330

Skill:  Comprehension

Objective:  13.6

32) Superior Stereo Systems, a cutting-edge manufacturer of stereo speakers, sells the popular Superior V model and recently introduced the Superior VI, a brand-new speaker technology. In the past, Superior sold all speakers directly to retailers. The firm was recently approached by a wholesaler who would like to carry its line of products. The company’s marketing manager, Deanna Thorpe, is not sure working through a wholesaler will be worthwhile. In fact, Deanna suspects that online sales would simplify marketing channels, cut costs, and improve profits for Superior. Why might Superior wish to use a wholesaler rather than selling directly to retailers?

Answer:  Superior will want to consider using a wholesaler because of the services it could provide. Wholesalers provide storage, delivery, credit, and product information while accumulating an assortment of products from a number of manufacturers. Wholesalers can also relieve space problems by storing merchandise and restocking store displays frequently.

Diff: 2     Type: ES     Page Ref: 329

Skill:  Comprehension

Objective:  13.6

 

 

33) How could the use of wholesalers affect the pricing for the Superior V and Superior VI speaker systems?

Answer:  Using wholesalers would relieve Superior of a great deal of storage and display costs as well as costs involved with maintaining a system of retail stores. However, adding another layer to the distribution channel from producer to consumer would obviously increase the price of each system for the consumer.

Diff: 3     Type: ES     Page Ref: 329-331

Skill:  Comprehension

Objective:  13.6

 

34)  How might Superior benefit from using e-intermediaries?

Answer:  E-intermediaries provide display products for both retail and business customers. Millions of users have instant access to product information. Superior could, for example, develop an online catalogue. Once it is in place, there is little cost in maintaining and accessing it.

Diff: 2     Type: ES     Page Ref: 332

Skill:  Comprehension

Objective:  13.6

 

35) What is channel conflict? What are possible outcomes from channel conflict? How do vertical marketing systems help resolve channel conflict?

Answer:  Channel conflict occurs when members of the distribution channel disagree over the roles they should play or the rewards they should receive. If certain channel members are given preferential treatment or more power, other members may get upset and channel conflict ensues. If channel members become frustrated, they switch dealers. Vertical marketing systems are designed to overcome the problems of channel conflict by forming the independent business units in the channel into a unified group, with one member coordinating the activities of all the channel members.

Diff: 3     Type: ES     Page Ref: 330

Skill:  Comprehension

Objective:  13.6

36) What is the fundamental difference between retailers and wholesalers?

Answer:  The fundamental difference is that retailers and wholesalers sell to different types of customers. Retailers sell products to ultimate consumers, that is, to individuals or companies that will actually use the product, whereas wholesalers sell products to other sellers, that is, individuals or companies that will resell those products.

Diff: 2     Type: ES     Page Ref: 330-331

Skill:  Comprehension

Objective:  13.7

 

 

37) How do wholesalers differ from agents/brokers? Explain the operation of each.

Answer:  Wholesalers sell products to other businesses and take title to the product which they sell. An agent/broker is an independent businessperson who represents a business and receives a commission in return, but does not take legal possession of the product.

Diff: 2     Type: ES     Page Ref: 330-331

Skill:  Comprehension

Objective:  13.7

 

38) Why would you expect a product sold at a specialty store to cost more than the same product that is sold at a department store?

Answer:  Department stores are usually large and handle a wide range of goods, whereas specialty stores are small and serve specific market segments with full product lines and knowledgeable sales staff in narrow product fields. As a result, it is likely that consumers would expect better service and more knowledgeable staff at the specialty store than at the department store. This attention to consumer needs would entail a higher price on the same product at the specialty store than at the department store.

Diff: 3     Type: ES     Page Ref: 332

Skill:  Comprehension

Objective:  13.7

 

39) Explain the three classifications of retailers.

Answer:  Retail stores can be classified as product line retailers, bargain retailers, and convenience stores. Product line retailers include department stores, which are organized into specialized departments, handling a wide range of goods and offering a wide variety of services. Supermarkets are also product line retailers; supermarkets are divided into departments of related products. They stress low prices, self-service, and wide selection. Another type of product line retailer is the specialty store; these stores are small stores that carry one line of related products. The second classification of retail stores is the bargain retailer. These retailers carry wide ranges of products and come in many forms, including the discount house, catalogue showroom, and the factory outlet. Finally, convenience stores, the third classification, offer ease of purchase. These stores stress easily accessible locations, extended store hours, and speedy service.

Diff: 3     Type: ES     Page Ref: 332

Skill:  Comprehension

Objective:  13.7

40) What is nonstore retailing? Identify the major types.

Answer:  As the term implies, nonstore retailing means direct interaction with customers to inform them of products and receive sales orders outside the context of bricks-and-mortar retail outlets. The major types of nonstore retailing are mail order (catalogue marketing), telemarketing, direct selling and video/TV (including shopping from home on special TV channels).

Diff: 1     Type: ES     Page Ref: 331

Skill:  Comprehension

Objective:  13.7

 

 

41) Explain electronic retailing.

Answer:  Electronic retailing (online retailing) allows sellers to inform, sell to, and distribute to consumers via the web. Electronic retailing is made possible by communications networks that let sellers post product information on consumers’ PCs. Use of the Internet to interact with customers (to inform, sell to, and distribute to them) is booming. Electronic catalogues, or e-catalogues, use the Internet to display products for both retail and business customers. Using electronic displays, firms give millions of users instant access to pages of product information. Electronic storefronts represent sellers’ virtual storefronts. These virtual storefronts allow consumers to collect information about products and buying opportunities, place orders, and pay for purchases. Interactive marketing provides real-time sales and service for thousands of websites. In addition, video marketing lets viewers shop at home from TV screens by phoning in or emailing orders. QVC is an example.

Diff: 2     Type: ES     Page Ref: 331-332

Skill:  Comprehension

Objective:  13.7

 

42) Compare the six basic forms of transportation and identify the types of products that each carries.

Answer:

Truck: short-distance distribution and more expensive products (large furniture)

Plane: fast, cheaper packaging, handling, unpacking (fresh fish to restaurants)

Rail: heavy, bulky items (cars)

Water carriers: cheapest, slowest (sand, gravel)

Pipelines: slow, inflexible (liquids, gases)

Digital transmission: newest and fastest form, but only useful for some products (music, software)

Diff: 2     Type: ES     Page Ref: 333

Skill:  Comprehension

Objective:  13.8

 

43) How is distribution useful as a marketing strategy?

Answer:  Instead of just offering advantages in product features, quality, price, and promotion, many firms have turned to distribution as a cornerstone of business strategy. This means improving all the activities that are necessary in order to get products to customers.

Diff: 2     Type: ES     Page Ref: 333

Skill:  Comprehension

Objective:  13.8

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