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Lesson 4-MGT411-Banking

2012-04-03T20:04:00.000-07:00

Money & Banking – MGT411

Lesson 4

OTHER FORMS OF PAYMENTS

Debit Card

The money in your account is used for payments

Works like a cheque and there is usually a fee for the transaction

Credit card

It is a promise by a bank to lend the cardholder money with which to make purchases.

When the card is used to buy merchandise the seller receives payment immediately

The money that is used for payment does not belong to the buyer

Rather, the bank makes the payment, creating a loan that the buyer must repay.

So, they do not represent money; rather, they represent access to someone else’s money

Electronic Funds Transfer

Move funds directly from one account to another.

Banks use these transfers to handle transactions among themselves

Individuals may be familiar with such transfers through direct deposit of their paycheques and the

payment of their utility bills, etc

E-money

Used for purchases on the Internet.

You open an account by transferring funds to the issuer of the e-money

When shopping online, instruct the issuer to send your e-money to the merchant

It is really a form of private money.

Stored-value card

Retail businesses are experimenting with new forms of electronic payment

Prepaid cellular cards, Internet scratch cards, calling cards etc

The Future of Money

The time is rapidly approaching when safe and secure systems for payment will use virtually no

money at all

We will also likely see

Fewer “varieties” of currency, (a sort of standardization of money) and

A dramatic reduction in the number of units of account

Money as a store of value is clearly on the way out as many financial instruments have become

highly liquid.

Measuring Money

Different Definitions of money based upon degree of liquidity. Federal Reserve System defines

monetary aggregates.

Changes in the amount of money in the economy are related to changes in interest rates, economic

growth, and most important, inflation.

Inflation is a sustained rise in the general price level

With inflation you need more money to buy the same basket of goods because it costs more.

Inflation makes money less valuable

The primary cause of inflation is the issuance of too much money

Because money growth is related to inflation we need to be able to measure how much money is

circulating

Money as a means of payments

We measure the quantity of money as the quantity of currency in circulation – an unrealistically

limited measure, since there are other ways of payments

Alternatively, broadly categorize financial assets and sort them by the degree of liquidity

Sort them by the ease with which they can be converted into a means of payments

Arrange them from most liquid to least liquid

Draw a line and include everything on one side of the line in the measure of the money

Money & Banking – MGT411

Where to draw the line?

In reality, we draw line at different places and compute several measures of money called the

monetary aggregates

M1, M2, and M3

M1 is the narrowest definition of money and includes only currency and various deposit accounts

on which people can write Cheques.

Currency in the hands of the public,

Traveler’s Cheques,

Demand deposits and

Other chequeable deposits

M2 includes everything that is in M1 plus assets that cannot be used directly as a means of payment

and are difficult to turn into currency quickly,

Small-denomination time deposits,

Money market deposit accounts,

Money market mutual fund shares

M2 is the most commonly quoted monetary aggregate since its movements are most closely related

to interest rate and economic growth.

M3 adds to M2 other assets that are important to large institutions

Large-denomination time deposits,

Institutional money market mutual fund shares,

Repurchase agreements and

Eurodollars

_Symbol

Assets included

C Currency

M1 C + demand deposits, travelers’ Cheques,

other chequeable deposits

M2 M1 + small time deposits, savings deposits,

money market mutual funds, money market deposit accounts

M3 M2 + large time deposits, repurchase agreements, institutional money market

mutual fund balances

Money & Banking – MGT411

Monetar y Aggregates Figures in millions as of March 2005

Currency issued 711,997

Currency held by SBP 3,188

Currency in tills of Scheduled Banks 43,914

Currency in circulation (1 – 2 – 3) 664,895

Scheduled Banks demand deposits 93,272

Other Deposits with SBP 4,826

M1 (4+5+6) 1,602,423

Scheduled Banks Time Deposits 1,037,678

Resident Foreign Currency Deposits 172,074

10.

Total Monetary Assets (M2) 2,812,175

11.

3,833,686

Source: State Bank of Pakistan

Table : The Monetary Aggregates

Monetary Aggregates Value as of August 2004 (U.S.$ billion)

= Currency in the hands of the public

686.2

+ Traveler’s checks

7.6

+ Demand deposits

315.3

+ Other checkable deposits

328.5

Total M1

1,337.6

=M1

+ Small-denomination time deposits

794.7

+ Savings deposits including money market deposit

accounts

3415.3

+ Retail money market mutual fund shares

735.5

Total M2

6,283.1

=M2

+ Large-denomination time deposits

1,036.3

+ Institutional money market mutual fund shares

1,104.7

+ Repurchase agreements

516.6

+ Eurodollars

344.5

Total M3

9,285.2

Money & Banking – MGT411

Figure: Growth Rates in Monetary Aggregates

-5

Figure: Money Growth and Inflation

Years

Measures of Inflation

Fixed-weight Index - CPI

Deflator – GDP or Personal Consumption Expenditure Deflator

Consumer Price Index (CPI)

Measure of the overall level of prices used to

Track chang es in the typical household’s cost of living

Allow comparisons of dollar figures from different years

Survey consumers to determine composition of the typical consumer’s “basket” of goods.

Every month, collect data on prices of all items in the basket; compute cost of basket

CPI in any month equals

Cost of basket in that month

100 Cost of basket in base period

Money & Banking – MGT411

Example:

The basket contains 20 pizzas and 10 compact discs.

Prices

Years Pizza CDs

2002 $10 $15

2003 $11 $15

2004 $12 $16

2005 $13 $15

From this table, we can calculate the inflation rate as:

Years Cost of Basket CPI Inflation rate

2002 $350 100.0 n.a.

2003 370 105.7 5.7%

2004 400 114.3 8.1%

2005 410 117.1 2.5%

GDP Deflator

The GDP deflator, also called the implicit price deflator for GDP, measures the price of output relative to

its price in the base year. It reflects what’s happening to the overall level of prices in the economy

GDP Deflator = (Nominal GDP / Real GDP) ×100

Years Nom. GDP Real GDP GDP Deflator Inflation Rate

2001 Rs46, 200 Rs46, 200 100.0 n.a.

2002 51,400 50,000 102.8 2.8%

2003 58,300 52,000 112.1 9.1%

Lecture No. 5 (MGT411)Banking

2012-04-03T19:48:00.000-07:00

Financial Intermediaries

The informal arrangements that were the mainstay of the financial system centuries ago have since given way to the formal financial instruments of the modern world
Today, the international financial system exists to facilitate the design, sale, and exchange of a broad set of contracts with a very specific set of characteristics.
We obtain the financial resources we need from this system in two ways:
Directly from lenders and
Indirectly from financial institutions called financial intermediaries
Indirect Finance
A financial institution (like a bank) borrows from the lender and then provides funds to the borrower.

If someone borrows money to buy a car, the car becomes his or her asset and the loan a liability.

Direct Finance
Borrowers sell securities directly to lenders in the financial markets. Governments and corporations finance their activities this way The securities become assets to the lenders who buy them and liabilities to the borrower who sells them

Financial and Economic Development

Financial development is inextricably linked to economic growth
- There aren’t any rich countries that have very low levels of financial development.

Figure: Financial and Economic Development

Financial Development is measured by the commonly used ratio of broadly defined money to GDP. Economic development is measured by the real GDP per capita.

Financial Instruments
A financial instrument is the written legal obligation of one party to transfer something of value – usually money – to another party at some future date, under certain conditions, such as stocks, loans, or insurance. Written legal obligation means that it is subject to government enforcement; The enforceability of the obligation is an important feature of a financial instrument. The “party” referred to can be a person, company, or government The future date can be specified or can be when some event occurs Financial instruments generally specify a number of possible contingencies under which one party is required to make a payment to another Stocks, loans, and insurance are all examples of financial instruments

Uses of Financial Instruments

Means of Payment	Purchase of Goods or Services
Store of Value	Transfer of Purchasing Power into the future
Transfer of Risk	Transfer of risk from one person or company to another

Characteristics of Financial Instruments
Standardization Standardized agreements are used in order to overcome the potential costs of complexity Because of standardization, most of the financial instruments that we encounter on a day-to-day basis are very homogeneous Communicate Information Summarize certain essential information about the issuer Designed to handle the problem of “asymmetric information”, Borrowers have some information that they don’t disclose to lenders

Classes of Financial Instruments
Underlying Instruments (Primary or Primitive Securities) E.g. Stocks and bonds Derivative Instruments Value and payoffs are “derived from” the behavior of the underlying instruments Futures and options

Value of Financial Instruments

Size of the promised payment
People will pay more for an instrument that obligates the issuer to pay the holder a greater sum.
The bigger the size of the promised payment, the more valuable the financial instrument
When the payment will be received
The sooner the payment is made the more valuable is the promise to make it
The likelihood the payment will be made (risk).
The more likely it is that the payment will be made, the more valuable the financial instrument
The conditions under which the payment will be made
Payments that are made when we need them most are more valuable than other payments

Value of Financial Instruments

Size	Payments that are larger are more valuable
Timing	Payments that are made sooner are more valuable
Likelihood	Payments that are more likely to be made are more valuable
Circumstances	Payments that are made when we need them most are more valuable

Lecture No. 03 of Financial Management

2012-03-19T19:42:00.001-07:00

Learning Objectives: After going through this lecture, you would be able to have a better understanding of the
following concepts.

Analysis of Financial Statements
Key Financial Ratios
Limitation of Financial Statements Analysis
Market value added & Economic value added.

You have studied in previous lecture
• Objective of Economics:
The objective of economics is profit maximization, however, for whom the
profit is to be maximized and for what duration may vary.
• Objective of Financial Accounting (FA):
The objective of financial accounting is to record accurate, timely, consistent,
and generalized collection of financial data, consolidating the information and
reporting it to the management for decision-making. Nevertheless, the decision-
makers use financial management techniques for a useful interpretation of the
consolidated financial data.
• Objective of Financial Management (FM):
The objective of financial management is to maximize the wealth of the
shareholders/owners. One way of increasing shareholders’ wealth is by
maximizing the stock price. In financial management when we talk about the
profit maximization, we actually imply profit maximization for the shareholders
of the company. We can simply measure it from the share price of the company
in the market.
Another way is to find the best investment and financing opportunities in order
to maximize the value of the company. As we will see in the later lectures, the
two ways are closely related to each other. Financial statements are used to assess
the financial position as well as performance of the company, so that the
financing and investing decisions could be taken accordingly.

Analysis of Financial Statements:
A company’s financial statements need to be studied for signs of financial
strengths and weaknesses and then compared to (or benchmarked against) the
industry. Before getting into the details of the financial management techniques,
we would briefly revise some of the accounting concepts, which are going to
help us in comprehending those analysis techniques.

There are four basic financial statements that are prepared by the financial
accountants for the use of the managers, creditors and investors of the company. These
statements are
a. Balance Sheet
b. P/L or Income Statement
c. Cash Flow Statement
d. Statement of Retained Earnings (or Shareholders’ Equity Statement)

The concepts that we are going to discuss here in reviewing financial accounting concepts
are Fundamental Accounting Equation and Double Entry Principle.

• Assets +Expense = Liabilities + Shareholders’ Equity + Revenue
(Note: Expense & Revenue are Temporary P/L accounts – the others are Permanent
Balance Sheet Accounts)

• Left Hand Items increase when debited. Right Hand items increase when credited.

• For every journal entry, the Sum of Debits = the Sum of Credits

Balance Sheet:

The following facts about balance sheet are also going to help us in
understanding the financial statements analysis process.

– A balance sheet is a ‘static snapshot’ at one point in time (therefore the
consolidated data available is vulnerable to inventory and cash swings, i.e., if
the balance sheet of a firm is showing low inventory and high cash position
at the year ending when the balance sheet is prepared, the company may buy
excessive inventory against cash the very next day. The balance sheet
prepared a day earlier would not report the new transaction and the latest
financial position of the company would not be known to the analyst, unless
the company updates him on that.)
– Balance sheet items or accounts are ‘permanent accounts’ that continue to
accumulate from one accounting cycle to the next.
– Balance sheet items are recorded on historical cost basis, i.e., the balance
sheet neglects any increase in value of assets resulting from inflation and
reports assets and liabilities at their book value. It is a big limitation for
financial analysts, since a useful analysis could only be made by considering
the assets and liabilities at their market value rather than book value.
Nevertheless, there are some approaches by which we can solve this
problem. Constant rupee approach is one such remedy.
– Constant Rupee Approach: In constant rupee approach, two balance sheets
of the same company for different times are compared at a specific time and
inflationary adjustments are made.

• Assets (Left Hand Side):

Having revised certain concepts and limitations of financial accounting process
and financial statements, we would now have a brief overview of the items that appear
on the left-hand side of the balance sheet, known as assets.

– Assets are economic and business resources that are used in generating
revenue for the organization: They can be tangible (inventory) or intangible
(patent, brand value, license). Some assets are classified as current (cash,
accounts receivable) and others are fixed (machinery, land, and building).
There are also long-term assets (property, loans given) and contingent assets,
the value of which can only be assessed in future (legal claim pending,
option).

– Current Assets = Cash + Marketable Securities + Accounts Receivable +
Pre-Paid Expenses + Inventory
– The accounts receivable aging schedule is a listing of the customers making
up total accounts receivable balance. Most businesses prepare an accounts
receivable aging schedule at the end of each month. Analyzing your accounts
receivable aging schedule may help you identify potential cash flow
problems.
– Inventory value (at any instant in time) is a very controversial figure which
depends on inventory valuation methodology (i.e. FIFO, LIFO, Average
Cost) and Depreciation Method (i.e. Straight Line, Double Declining,
Accelerated). Companies have the flexibility that they can use one
methodology for preparing the financial statements & the different
methodology for tax purposes.

• Liabilities (Right Hand Side):

The right hand side of the balance sheet represents liabilities.

– Liabilities are sources which are use to acquire the resources or liabilities are
obligations of two types:
1) Obligations to outside creditors and
2) Obligations to shareholders known as Equity.

– Liabilities can be short term debts, long term debt, equity, retained earnings,
contingent, unrealized gain on holding of marketable securities
MGT201 (Financial Management)

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– Current Liabilities = Account Payables + Short Term Loans + Accrued
Expenses

– Net Working Capital = Current Assets – Current Liabilities
– Total Equity = Common Equity + Paid In Capital + Retained Earnings
(Retained Earnings is NOT cash always)
– Total Equity represents the residual excess value of Assets over Liabilities:
Assets – Liabilities = Equity = Net Worth
– Only cash account represents real cash which can be used to pay your bills!!
Profit & Loss account or Income Statement:
– An income statement is a “flow statement” over a period of time matching
the operating cycle of the business, which reports the income of the firm.
– Generally, Revenue – Expense = Income
– Right hand side receipts (revenues) are added. Left hand side payments
(expenses) are subtracted.
– P/L Items or Accounts are ‘temporary’ accounts that need to be closed at
the end of the accounting cycle.
– Sales revenue – Cost of Goods Sold = Gross Profit (Revenue)
– Cost of Goods Sold is a very controversial figure that varies depending on
Inventory Valuation Method (i.e., FIFO, LIFO, Average Cost) and
Depreciation Method (Straight Line, Double Declining, Accelerated).
Depreciation is treated as an expense (although it is non-cash)
– Gross Revenue – Admin & Operating Expenses = Operating Revenue
– Operating Revenue – Other Expenses + Other Revenue = EBIT
– EBIT – Financial Charges & Interest = EBT Note: Leasing Treatment
– EBT – Tax = Net Income
– Net Income – Dividends = Retained Earnings
– Net Income is NOT cash (it can’t pay for bills)

P/L Statement of Company XYZ
Year Ending June 30th
2002)

       (‘000 Rs.)    (‘000 Rs)    (‘000 Rs)
Net Sales         1000
Cost of Goods Sold        (500)
Gross Profit       500

Administration Expenses      (200)
Depreciation Expense         (0)
Operating Profit        300

Other Expenses       (180)
Other Income (interest)         (0)    (180)
MGT201 (Financial Management)

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EBIT          120

Tax             (20)

Net Income                100

Cash Flow Statement:
A cash flow statement shows the cash position of the firm and the way cash has
been acquired or utilized in an accounting period.
A cash flow statement separates the activities of the firm into three categories,
which are operating activities, investing activities and financing activities.

• Operating Cash Flow Statement can be obtained by using two approaches:

1) Direct
2) Indirect.
A cash flow statement can be derived from P/L or Income
Statement and two consecutive year Balance Sheets.

• A cash flow statement is not prepared on accrual basis but rather on cash
basis: Actual cash receipts and cash payments.

• The net income is obtained from the Income Statement of a period of time
matching the operating cycle of the business. Generally:

    Revenue – Expense = Income

• In order to arrive as the cash flows resulting from operating activities
Increases in current assets are cash payments (-), i.e., cash outflow
Increases in current liabilities are cash receipts (+), i.e., cash inflow
Right Hand Side Receipts are added.
   Left Hand Side payments are subtracted

Statement of Retained Earnings or Shareholders’ Equity Statement

Total Equity = Common Par Stock Issued + Paid In Capital + Retained Earnings

(Retained Earnings is the cumulative income that is not given out as Dividend – it is NOT
cash)


XYZ
    Cash Flow Statement
                  (June 30th
2001 – June 30th
2002)

                                                                    (‘000 Rs)     (‘000 Rs)     (‘000 Rs)

Net Income                                  400
Add Depreciation Expense                      100

     Subtract Increase in Current Assets:
Increase in Cash            (400)
Increase in Inventory (700)
                (1100)
     Add Increase in Current Liabilities:
Increase in A/c Payable                               500

Cash Flow from Operations                                      (100)

Cash Flow from Investments                      0

Cash Flow from Financing                              500

   Net Cash Flow from All Activities                    400

Note 1:   Indirect Cash Flow Approach using Income Statement and two
consecutive Balance Sheets

Note 2: Final Net Cash Flow from All Activities should match the difference
in the difference in the closing balances in the Balance Sheets from
June 30th 2001 and June 30th 2002

Note 3:   Investments include all cash sale and purchases of non-current
assets and marketable securities MGT201 (Financial Management)

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Note 4:    Financing includes all cash changes in loans, leasing, and equity etc.

Some Financial Ratios:

LIQUIDITY & SOLVENCY RATIOS:

         Current Ratio: Current ratio is a ratio between current assets and liabilities, which
tells that for every dollar in current liabilities, how many current assets do the company
possess. Since the current liabilities are usually paid out of current assets, it makes sense to
compare the two figures to assess the liquidity of the firm. Liquidity implies the ease with
which the current liabilities can be paid off. Generally, the higher the ratio, the better it is
considered, but too high a ratio may imply less productive use of current assets. A ratio of
two to one (2:1) is considered ideal.

           =   Current Assets / Current Liabilities

          Quick/Acid Test ratio: Quick ratio is relatively a stringent measure of liquidity. The
ratio is obtained by subtracting inventory from current assets and dividing the result by
current liabilities. Inventory is the least liquid of all current assets. By subtracting inventory
from current assets, we are actually comparing more liquid assets with current liabilities. This
ratio not only helps in gauging the solvency of the company, it may also show if the
inventories are piling up. A desirable quick ratio can range from (0.8:1) to (1.5:1) depending
on the nature of the business.

           = (Current Assets – Inventory) / Current Liabilities

          Average Collection Period: Also known as Days Sales Outstanding, average
collection period shows in how many days the Accounts receivables of the company are
converted into cash. Most of the companies sell most of their products/services on credit
basis, hence it is critical for the company to know in how much time these receivables could
be converted to cash in order to ensure liquidity at all times. Average collection period is
calculated using the following formula

           = Average Accounts Receivable /(Annual Sales/360)

Note: Average collection period is usually expressed in terms of days. If you find a
decimalized answer, you should round it off to the next integer.

PROFITABILITY RATIOS:
        The profitability ratios show the combine effects of liquidity, asset management,
and debt management on operating result.
MGT201 (Financial Management)

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© Copyright Virtual University of Pakistan
          Profit Margin (on sales): One of the most commonly used ratios is profit margin on
sales. This ratio tells the percentage of profit for every dollar of revenue earned. This ratio is
usually expressed in terms of percentage and the general rule is , the higher the ratio, the
better it is. Most of the companies compare this ratio to the previous years’ ratios to assess if
the company is better off.

           = [Net Income / Sales] X 100

          Return on Assets: Return on assets is another profitability ratio, which shows the
profitability of the company against each dollar invested in total assets. We can obtain this
figure by simply by dividing the net profit with total assets. Since the assets are economic
resources that are used to earn profit, it is logical to assess if the assets have been used
efficiently enough to generate profits. This ratio is also expressed in percentage terms.

           = [Net Income / Total Assets] X 100

          Return on equity: Return on equity is of special interest to the shareholders,
since equity represents the owners’ share in the business. Return on equity can be obtained
by dividing the net income with the total equity. This ratio shows that for each dollar in
equity how much profit is generated by the company.

           = [Net Income/Common Equity]

ASSET MANAGEMENT RATIOS

   These measures show how effectively the firm has been managing its assets.
Inventory Turnover:
Inventory turnover shows the number of times the inventories are replenished within
one accounting cycle. The ratio can be obtained by dividing the sales by inventory. While the
quick ratio measures the liquidity and points out the inventory piling problem, the inventory
turnover confirms whether or not the major portion of the current assets of the firm are tied
up in inventory. This ratio is also used in measuring the operating cycle and cash cycle of the
firm. A higher turnover is desirable as it reflects the liquidity of the inventories.

           = Sales / inventories

Total Assets Turnover: An effective use of total assets held by a company ensures
greater revenue to the firm. In order to measure how effectively a company has used its total
assets to generate revenues, we compute the total assets turnover ratios, dividing the sales by
total assets.

            = Sales / Total Assets

An increasing ratio over the years may show that with an addition of assets, the company has
been able to generate incremental sales in greater proportion.

DEBT (OR CAPITAL STRUCTURE) RATIOS: MGT201 (Financial Management)

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© Copyright Virtual University of Pakistan

         Debt-Assets: A commonly used ratio to measure the capital structure of the firm is
debt to assets ratio. Capital structure refers to the financing mix (proportion of debt and
equity) of a firm. The greater the proportion of debt in the financing mix, the less willing
creditors, and investors would be to provide more finances to the company. In Pakistan, the
debt to assets ratio is prescribed in prudential regulations by the State Bank of Pakistan as a
guideline for the banks (creditors). A ratio greater than 0.66 to 1 is considered alarming for
the providers of funds.

           = Total Debt / Total Assets

         Debt-Equity: Another commonly used ratio, debt to equity, explicitly shows the
proportion to debt to equity. A ratio of 60 to 40 is used for new projects, i.e., for a project it
is permitted to raise its finances 60 percent from the debt and 40 percent from equity. Debt
to equity is computed by the following formula.

           = Total Debt / Total Equity

         Times-Interest-Earned: Times-interest-earned reflects the ability of a company to
pay its financial charges (interest). This ratio is obtained by dividing the operating profit by
the interest charges. Conceptually, the interest charges are to be paid from the earnings
before interest and taxes. A ratio of 4 to 1 shows that the company covers the interest
charges 4 times, which is generally considered satisfactory by the management, however, a
ratio higher than that, may be more desirable. A high time-interest-earned ratio is a good
sign, especially for the creditors.

           = EBIT / Interest Charges
Market Value Ratios:
      Market value ratios relate the firm’s stock price to its earnings &
book value per share. These ratios give management an indication of what equity
investors think of the company’s past performance & future prospects

     Price Earning Ratio:
     It shows how much investors are willing to pay per rupee of reported
profits. This ratio reflects the optimism, or lack thereof, investors have about the future
performance of the company.

             = Market Price per share / *Earnings per share

          Market /Book Ratio:

     Market to book ratio gives an indication how equity investors regard
the company’s value. This ratio is also used in case of mergers, acquisition or in the event of
bankruptcy of the firm.


           = Market Price per share / Book Value per share MGT201 (Financial Management)

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© Copyright Virtual University of Pakistan

        *Earning Per Share (EPS):
           = Net Income / Average Number of Common Shares Outstanding


Ratios help us to compare different businesses in the same industry and of a similar
size.

Limitations of Financial Statement Analysis:

Despite the fact that ratios are a useful analysis tool, there are certain
limitations, which are important for an analyst to understand before applying this tool, in
order to make his analysis more meaningful.

• FSA is generally an outdated (because of Historical Cost Basis) post-mortem of what
has already happened. It is simply a common starting point for comparison. Use
Constant Rupee / Dollar analysis to account for inflation.

• FSA is limited by the fact that financial statements are “window dressed” by creative
accountants. Window dressing refers to the understatement or overstatement of
financial facts.

• Different companies use different accounting standards for Inventory, Depreciation,
etc. therefore comparing their financial ratios can be misleading

• FSA just presents a few static snapshots of a business’ financial health but not the
complete moving picture.

• It’s difficult to say based on Financial Ratios whether a company is healthy or not
because that depends on the size and nature of the business.

Difference in Focus:

Financial Statements are prepared by financial accountants with a certain perspective,
however the financial managers—the end users of these financial statements, have a
different focus to draw meaningful conclusions out of these statements. These differences
are listed below

• Financial Accounting (FA) Focus:
• Use Historical Value (assets are booked at original purchase price)
• Follow Accrual Principle (calculate Net Income based on accrued expense
and accrued revenue)
• How to most logically, clearly, and completely represent the financial data.

• Financial Management (FM) Focus:
MGT201 (Financial Management)

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• Use Market Value (assets are valued at current market price)

• Follow Incremental Cash Flows because an Asset’s (and a Company’s)
Value is determined by the cash flows that it generates.

• How to pick the best assets and liabilities portfolios in order to maximize
shareholder wealth.

FM Measures of Financial Health:

The financial management measures that are used for assessing the financial health of a
company primarily focus on the basic objective of financial management, i.e., to increase the
wealth of the shareholders. Given below are the two important measures of financial health.

• M.V.A (Market Value Added):
Market Value Added is a measure of wealth added to the amount of equity capital
provided by the shareholders. It can be determined by the following equation

   MVA (Rupees) = Market Value of Equity – Book Value of Equity Capital
Following are the characteristics of MVA

• It is a cumulative measure, i.e., it is measured from the inception of
the company to date. Market Value is based on market price of
shares.

• It shows how much more (or less) value the management has
succeeded in adding (or reducing) to the company in the eyes of the
general public / market.

• It is used for incentive compensation packages for CEO’s and higher
level management.

• E.V.A (Economic Value Added):

Economic Value Added, on the other hand, focuses on the managerial effectiveness in a
given year. It can be obtained by subtracting the cost of total capital from the operating
profits of a company

• EVA (Rupees) = EBIT (or Operating Profit) – Cost of Total Capital

EVA has the following characteristics
• It is measured for any one year.

• It is relatively difficult to calculate because Operating Profit depends
on Depreciation Method, Inventory Valuation, and Leasing
Treatment, etc. Also, a combined Cost of Total Capital (Debt and
Equity) is difficult to compute.

Lecture No. 02 of Financial Management

2012-03-06T09:38:00.001-08:00

OBJECTIVES OF FINANCIAL MANAGEMENT, FINANCIAL ASSETS AND FINANCIAL MARKETS

Learning Objectives
Learning objectives: After going through this lecture, you would be able to have a better understanding of the following concepts. · Objectives of financial management as compared to Economics and Financial Accounting · Real and Financial assets · Different types and characteristics of financial assets and the similarities and differences among them · How these financial assets are reported in the balance sheet of a company · Concept of Value and different kinds of Value · Types of financial and real assets markets While studying the course of financial management, we will study, in detail, two important areas of financial management, known as: 1. Investments & Capital budgeting 2. Corporate financing.

Objective of Economics, Financial Management, Financial Accounting (FA)
• Objective of Economics: The objective of economics, as a subject, is profit maximization; however, the scope of economic profit maximization is vast and loosely defined. In economics, we can talk about profit maximization for an individual, the whole society, or a particular class or group. We can also talk about profit maximization for the whole world in global terms. In social economics, we may study the social profit maximization for the societies, whereas, in capitalistic economics we may study individual or company’s profit. • Objective of Financial Management (FM) In comparison, financial management is more focused. The objective of financial management, specifically, is to maximize the shareholders wealth in the present terms. Financial practitioners usually use the discounting and the net present value techniques while calculating the increase in the wealth of shareholders. • Objective of Financial Accounting (FA) The objective of financial accounting is to collect accurate, systematic, and timely financial data and other financial information, and to compile and consolidate it in an organized and systematic way, according to the principles and rules of accounting, for reporting purpose. The financial managers use these reports to assess the financial position of the company through various financial management tools and then the financial position can be compared to, or benchmarked against, the industry norms. The four different financial statements used for the purpose of reporting and analysis are 1. Balance Sheet 2. P/L or Income Statement 3. Cash Flow Statement 4. Statement of Retained Earnings (or Shareholders’ Equity Statement) In financial accounting, assets are recorded on the basis of historical costs in the balance sheet, i.e., the assets are recorded at their original purchase price. Of course, the depreciation on the asset is duly subtracted from its original value as the asset remains in use of the business. However, in financial management, book value is seldom used and financial managers consider the market value and the intrinsic value of assets. Market value may be defined as the value currently prevailing in the market or the value at which the sellers are ready to sell, and buyers are ready to buy a particular asset. Intrinsic value or the fair value is calculated by summing up the discounted future cash flows. In Financial accounting, we followed the principle of accrual accounting in which expenses & incomes are rerecorded when they incur. In Financial management, we will primarily be interested in cash & cash flows. In Financial management, we will use cash as primary source for calculating value, although the accrual data would also be useful for analyzing a firm’s financial position. Before getting into details, it is important to understand a few concepts that would be frequently used throughout the course. Real Assets: Real assets are tangible assets that have physical characteristics. For instance, land, house, equipment, car, wheat, fruits, cotton, computers, etc., are different kinds of real assets.

Securities and Bonds
Securities: Security, also known as a financial asset, is a piece of paper representing a claim on an asset. Securities can be classified into two categories. • Direct Securities: Direct securities include stocks and bonds. While valuing direct securities we take into account the cash flows generated by the underlying assets. Discounted Cash Flow (DCF) technique is often used to determine the value of a stock or bond. • Indirect Securities: Indirect securities include derivatives, Futures and Options. The securities do not generate any cash flow; however, its value depends on the value of the underlying asset. While in this course, direct securities would be discussed at length, the indirect securities would only be skimmed through in the later chapters. Bonds: Bonds represent debt. The important features of bonds are given as under. • Internationally, bonds are the most common way for companies to raise funds. • A bond is a long-term debt contract (on paper) issued by the borrower (Issuer of the Bond i.e., a company that wishes to raise funds) to the lenders (bondholders or Investors which may include banks, financial institutions, and private investors). • Bonds issued by a company are usually shown on the liabilities side of the Balance Sheet. • A Bond requires the borrower to pay a pre-determined amount of interest regularly to the lender (bondholder). The interest rate or the rate of return on a bond can be Fixed or Floating. If an investor purchases a bond which is offering a rate of 10 % for the life of the bond, the rate would be fixed at 10 percent. However, if the interest rate on the bond is tied to the market interest rates, the rate of interest would be floating. The floating rate implies that the interest rate would fluctuate with any change in the market interest rate. Types of Bonds: • Debentures: Unsecured – no asset backing • Mortgage Bond: Secured by real property i.e. Land, house • Others: Eurobond, Zeros, Junk, etc. The details on these different types of bonds would be discussed in later lectures.

Shares and it's types
Stocks (or Shares): Stocks (or Shares) are paper certificates representing ownership in a business. Therefore, if a company has issued 1 million shares and an investor owns 1 share only, he is a part owner (or shareholder) of the company. Stocks or shares are represented in the equity section of the balance sheet. A stock certificate is perpetuity, i.e., it lasts as long as the company does. Shareholders have a residual claim (last claim) on whatever net income (or profit) and assets are left over after the bondholders have been fully paid off. It is the most common source of raising funds under Islamic Shariah. Shares are traded in Stock market e.g. Karachi Stock Exchange (KSE), Lahore Stock Exchange (LSE) & Islamabad Stock Exchange (ISE). Difference between Shares & Bonds: The main difference between shares and bonds is that shares are representation of ownership in a company while bonds are not representative of ownership. The second difference is that shares last as long as the company lasts where as bonds have limited life. Another difference is that the return on a bond is predetermined, i.e., the investor knows in advance how much return he would get from a bond. However, a stockholder cannot be certain about the return on a stock investment, since the dividends may or may not be paid in a certain year or the percentage of dividends announced may vary. Types of Stocks (or Shares): Common Stock: Common shareholders receive dividends, or portion of the net income which the management decides, NOT to reinvest into the company in the form of retained earnings. Dividends are paid in proportion to the number of shares the stockholders own and are announced by the board of directors, who may opt not to announce a dividend in a particular year. Common Stockholders have voting rights to elect the board of directors. Preferred Stock: It is the stock with a predetermined or fixed dividend. In case, the board of directors announces dividends, the preferred stockholders would have a priority claim on them, i.e., they would be paid dividends before any dividends are paid to the common stockholders. However, if the board opts to retain earnings, the preferred stock would not yield a dividend, and thus cash flows from a preferred dividend are not as certain as income of the bondholders. Dividends are paid out of net income. Shareholders get a part of the net profit of the company during the year, proportional to their shareholdings, and it is for the management to decide how much of the profit is to be distributed among the shareholders. Now, we will see how these shares and bonds will appear on the face of a balance sheet. We will have to look at these shares and bonds from two aspects, the shares and bonds that the company issues and the shares and bonds that company invest in. The shares and bonds that a company purchases as an investment will come on the asset side under the section of marketable securities. These shares and bonds have been purchased by the company to generate extra income. On the other hand, those shares and bonds that the company issues to raise funds will appear on the liability side. If the company has issued bonds, they will be classified as liability. But if the company has issued equity shares, they will appear under the section of common equity on liability side in the balance sheet. Where do bonds & stocks appear on the Balance Sheet?

Financial Terms and Financial Markets
Finally, let’s talk about the most important concept that we will keep on repeating throughout the course; the concept of ‘value’. In financial terms, there are different types of values, which are given as under. Value • Book Value: Book Value is the value of an asset as shown on the Balance Sheet. It is based on historical cost (or purchase price) and accumulated depreciation. • Market Value: Market value of an asset is as quoted in the market, which basically depends on the supply & demand of the asset and the negotiations between buyers & sellers. • Liquidation Value: The liquidation value is the value of an asset in a particular situation, where the company is in the process of wrapping up the business and its assets are valued and sold individually. • Fair Value or Intrinsic Value: The most important value concept in this course is of fair value or the intrinsic value. In order to find the intrinsic value of an asset, the present value of the working assets’ future cash flows is calculated and summed up. If the intrinsic value of an asset is less than its market value, the asset among investors is perceived as “undervalued”. Financial Markets • Capital Markets: These are the markets for the long term debt & corporate stocks. The maturity of debt should be more than one year to qualify it as a capital market instrument. Stock Exchange: A stock exchange is a place where the listed shares, Term finance certificates (TFC) and national investment trust units (NIT) are exchanged and traded between buyers and sellers. Long term bonds: Long term government & corporate bonds are also traded in capital markets. • Money Markets Money market generally is a market where there is buying and selling of short term liquid debt instruments. (Short term means one year or less).Liquid means something which is easily en-cashable; an instrument that can be easily exchanged for cash. Short term Bonds o Government of Pakistan: Federal Investment Bonds (FIB), Treasury-Bills (T-Bills) o Private Sector: Corporate Bonds, Debentures Call Money, Inter-bank short-term and overnight lending & borrowing Loans, Leases, Insurance policies, Certificate of Deposits (CD’s) Badlah (money lending against shares), Road-side money lenders • Real Assets or Physical Asset Markets o Cotton Exchange, Gold Market, Kapra (Cloth) Market o Property (land, house, apartment, warehouse) o Property (land, house, apartment, warehouse) o Computer hardware, Used Cars, Wheat, Sugar, Vegetables, etc.

Time Table of Daily Study

2012-03-04T05:07:00.003-08:00

Time Table of Daily Study

Days	MTH302 Business Mathematics & Statistics	ECO401 Economics	ENG301 Business Communication	MGT201 Financial Management	MGT402 Cost & Management Accounting	MGT411 Money & Banking	MGT502 Organizational Behavior
Monday	Lecture# 1	Lecture# 1	Lecture# 1	Lecture# 1
Tuesday				Lecture# 2	Lecture# 1	Lecture# 1	Lecture# 1
Wednesday	Lecture# 2	Lecture# 2	Lecture# 2	Lecture# 3
Thursday				Lecture# 4	Lecture# 2	Lecture# 2	Lecture# 2
Friday	Lecture# 3	Lecture# 3	Lecture# 3	Lecture# 5
Saturday				Lecture# 6	Lecture# 3	Lecture# 3	Lecture# 3
Sunday	Test	Test	Test	Test	Test	Test	Test
Monday	Lecture# 4	Lecture# 4	Lecture# 4	Lecture# 7
Tuesday				Lecture# 8	Lecture# 4	Lecture# 4	Lecture# 4

Lecture No. 3

2012-02-27T19:04:00.000-08:00

Objectives
Understand the financial statements of manufacturing concerns

Purpose of preparing financial statements

Financial statements are prepared to demonstrate financial results to the users of financial information. These are the reports, which are prepared by the accounting department and are used by the different people inclusive of the management.

According to IASB framework:

“Financial statements exhibit its users the financial position, financial performance, and cash inflow and outflow analysis of an entity.”

Components of Financial Statements

According to IASB framework there are five components of financial statements:

Balance Sheet:

Statement of financial position at a given point in time.

Income Statement:

Incomes minus expenses for a given time period ending at a specified date.

Statement of changes in Equity:

Also known as Statement of Retained Earnings or Equity Statement.

Cash Flows Statement:

Summarizes inflows and outflows of cash and cash equivalents for a given time period ending at a specified date.

Notes (to the accounts):

Includes accounting policies, disclosures and other explanatory information.

It is not possible for all the business entities to prepare all of the components of the financial statements, it depends upon the size, nature and statutory requirements of each of the entities that whether all components are to be prepared or not.

For example a small business entity (like a washer man) does not need to prepare statement of changes in equity or notes to the accounts as the size of information is very little and not complex

Financial statements prepared by the Cost Accountant
Cost accounting department prepares reports that help the accounting department in preparing final accounts, these include; · Cost of goods manufactured statement · Cost of goods sold statement Both of the statements represent production cost function or the function of expenses that are incurred to make the goods or services available for sale. It depends upon the form of the business entity whether what should be disclosed in these statements and what should be the extent of the details to be given into these statements

Forms of business entities
Manufacturing Entities Manufacturing entities purchase materials and components and convert them into finished goods. Costing department of these entities works very much efficiently, a complete cost accounting system is followed in manufacturing concerns in which procedures of cost accumulation, methods of product costing, process of calculating per unit cost and determining the cost of inventories are defined. Trading Entities Trading entities purchase and then sell tangible products without changing their basic form. Costing department of these entities is not involved in that much minute calculations and procedures. It simply has to keep records of the cost of goods purchased and cost of inventory. Servicing Entities Servicing entities provide services or intangible products to their customers. Costing department of these entities is also concerned with calculation of the cost of service provided. Inventory of service is also determined in this type of concerns.

Lecture No. 2

2012-02-27T19:00:00.000-08:00

OBJECTIVES
To understand the basic terminologies used in cost and management accounting

IMPORTANT TERMINOLOGIES

Cost Unit

It is a unit of a product or service in relation to which the cost is ascertained, i.e. it is the unit of the out put or product of the business. In simple words the unit for which cost of producing the units is identified /allocated.

Example

Ball point for a Ball point manufacturing entity

Bottle for Beverage producing entity

Fan for a Fan manufacturing entity

Cost Center

Cost centre is a location where costs are incurred and may or may not be attributed to cost units.

Examples

Workshop in a manufacturing concern

Auto service department

Electrical service department

Packaging department

Janitorial service department

Revenue Centre

It is part of the entity that earns sales revenue. Its manager is responsible for the revenue earned not for the cost of operations.

Examples

Sales department

Factory outlet

Profit Centre

Profit centre is a section of an organization that is responsible for producing profit.

Examples

A branch

A division

Investment Centre

An investment centre is a segment or a profit centre where the manager has significant degree of control over his/her division’s investment policies.

Examples

A branch

A division

Relevant Cost

Relevant cost is which changes with a change in decision. These are future costs that effect the current management decision.

Examples

Variable cost

Fixed cost which changes with in an alternatives

Opportunity cost

Irrelevant Cost

Irrelevant costs are those costs that would not affect the current management decision.

Example

A building purchased in last year, its cost is irrelevant to affect management decisions.

Sunk Cost

Sunk cost is the cost expended in the past that cannot be retrieved on product or service.

Example

The entity purchase stationary in bulk last moth. This expense has been incurred and hence will not be relevant to the management decisions to be taken subsequent to the purchase.

Opportunity Cost

Opportunity cost is the value of a benefit sacrificed in favor of an alternative.

Example

An investor invests in stock exchange he foregoes the opportunity to invest further in his hotel. The profit which the investor will be getting from the hotel is opportunity cost.

Product Cost

Product cost is a cost that is incurred in producing goods and services. This cost becomes part of inventory.

Example

Direct material, direct labor and factory overhead.

Period Cost

The cost is not related to production and is matched against on a time period basis. This cost is considered to be expired during the accounting period and is charged to the profit & loss account.

Example

Selling and administrative expenses

Historical Cost

It is the cost which is incurred at the time of entering into the transaction. This cost is verifiable through invoices/agreements. Historical cost is an actual cost that is borne at the time of purchase.

Example

A building purchased for Rs 400,000, has market value of Rs. 1,000,000. Its historical cost is Rs. 400,000.

Standard Cost

Standard cost is a Predetermine cost of the units.

Example

Standard cost for a unit of product ‘A’ is set at Rs 30. It is compared with actual cost incurred for control purposes.

Implicit Cost

Implicit cost imposed on a firm includes cost when it foregoes an alternative action but doesn't make a physical payment. Such costs are related to forgone benefits of any single transaction, and occur when a firm:

Example

Uses its own capital or

Uses its owner's time and/or financial resources

Explicit Cost

Explicit cost is the cost that is subject to actual payment or will be paid for in future.

Example

Wage

Rent

Materials

Differential Cost or Incremental cost

It is the difference of the costs of two or more alternatives.

Example

Difference between costs of raw material of two categories or quality.

Costing:

The measurement of cost of a product or service is called costing; however, it is not a recommended terminology.

Cost Accounting:

It is the establishment of budgets, standard cost and actual costs of operations, processes, activities or products and the analysis of variances, profitability or social use of funds. It involves a careful evaluation of the resources used within the business. The techniques employed are designed to provide financial information about the performance of a business and possibly the direction which future operations should take.

Prime Cost:

The total costs which can be directly identified with a job, a product or service is known as Prime cost. Thus prime cost = direct materials + direct labor + other direct expenses.

Conversion Cost.

This is the total cost of converting the raw materials into finished products. The total of direct labor other direct expenses and factory overhead cost is known as conversion cost

Cost Accumulation

Cost accumulations are the various ways in which the entries in a set of cost accounts (costs incurred) may be aggregated to provide different perspectives on the information.

Methods of cost accumulation

Process costing

It is a method of cost accounting applied to production carried out by a series of operational stages or processes.

Job order costing

Generally, it is the allocation of all time, material and expenses to an individual project or job.

Lecture No. 1

2012-02-27T18:58:00.000-08:00

OBJECTIVE
Objective of cost accounting is computation of cost per unit, whereas the objective of management accounting is to provide information to the management for decision making purposes.

INTRODUCTION
Cost Accounting Cost Accounting is an expanded phase of financial accounting which provides management promptly with the cost of producing and/or selling each product and rendering a particular service. Management Accounting Management accounting is application of professional knowledge and skill in the preparation and presentation of financial information in such a way as to assist management in decision making and in the planning and control of operations of the entity Objectives Objective of cost accounting is computation of cost per unit, whereas the objective of management accounting is to provide information to the management for decision making purposes. Users Users of cost & management accounting are the decision makers and the managers of the entity/organization for which all this exercise is undertaken. Uses of Cost and Management Accounting It determines total cost of production and cost of sales It determines appropriate selling price It discloses the profitable products, areas and activity/capacity levels It is used to decide whether to manufacture or purchase for outside It helps in planning and controlling the cost of production

ELEMENTS OF COST

Any product that is manufactured is the result of consumption of some resources. The management, for its planning and controlling functions, must know the cost of using these resources. The constituent elements of cost are broadly classified into three distinct elements:

1 Direct Material Cost

2 Direct Labor Cost

3 Other Production Cost

Direct Cost

Indirect Cost

CLASSIFICATION OF COST

Elements of cost (Direct Material, Direct Labor, Other Production costs) can be classified as direct cost or indirect cost.

Direct Cost

A direct cost is a cost that can be traced in full to the product or service for which cost is being determined.

Costs that can be economically identified with a specific saleable product or service (cost unit).

a) Direct material costs are the costs of materials that are known to have been used in producing and selling a product or rendering a service.

b) Direct labor costs are the specific costs of the workforce used to produce a product or rendering a service.

c) Other direct production costs are those expenses that have been incurred in full as a direct consequence of producing a product, or rendering a service.

Indirect Cost/Overhead Cost

An indirect cost or overhead cost is a cost that is incurred in the course of producing product or rendering service, but which cannot be traced in the product or service in full.

Expenditure incurred on labor, material or other services which cannot be economically identified with a specific cost product or service (cost unit).

Examples include:

Wages of supervisor, cleaning material, workshop insurance.

Material Cost	Labor Cost	Other Production Cost	*Total Production Cost*
Direct	Direct	Direct	*Price Cost*
Indirect	Indirect	Indirect	*Factory Overhead Cost*

Prime Cost

Direct Material

+Direct Labor

+Other direct production cost

Prime cost .

Total Production Cost

Prime Cost

+Factory overhead cost

Total production cost .

Conversion Cost

Direct labor cost

+Factory overhead cost

Conversion cost .

COST BEHAVIOR

Cost behavior is the way in which total production cost is affected by fluctuations in the activity (production) level.

Activity level

The activity level refers to the amount of work done, or the number of events that have occurred. Depending on circumstances, the level of activity may refer to the volume of production in a period, the number of items sold, the value of items sold, the number of invoices issued, the number of invoices received, the number or units of electricity consumed, the labor turnover etc. etc.

Basic principle

The basic principle of cost behavior is that as the level of activity rises, costs will usually raise. For example; it will cost more to produce 500 units of output than it will cost to produce 100 units; it will usually cost more to travel 10 km than to travel 2 km. Although the principle is based on the common sense, but the cost accountant has to determine, for each cost elements, whether which cost rises by how much by the change in activity level.

Division of cost by its behavior

Basically the cost of production has two behaviors:

Fixed Cost
Variable Cost

Fixed Cost

It is a cost which tends to be constant by increases or decreases in the activity level.

Graph of Fixed Cost

This graph shows that the cost remains fixed regard less of the volume of output.

Examples include:

Salary of the production manager (monthly/annual)
Insurance premium of factory work shop
Depreciation on straight line method

Variable Costs

A variable cost is a cost which tends to very directly with the change in activity level. The variable cost per unit is the same amount for each unit produced whereas total variable cost increases as volume of output increases.

Graph of Variable Cost

Rs.

Volume of output

This graph shows a proportionate increase in the cost by the increase in the activity level.

Examples include:

Cost of raw-material consumed
Direct labor cost
Selling commission

Further division of cost behavior

Step fixed cost
Semi variable cost

Step fixed cost

A step fixed cost is the cost which is constant for a specific range of activity and rises to a new constant level once the range exceeds. The range over which the fixed cost remains constant is known as the relevant range.

For example; the depreciation of a machine may be fixed if production remains below 100 number of units per month, but if the production exceeds 100 number of units, a second machine may now be required, and the cost of depreciation would go up a step. Other examples include:

a. Rent of workshop (in case of increase in the production one needs to rent one more workshop)

b. Salary of supervisor (increase in output will be supervised by increased number of supervisors)

Graph of Step fixed Cost

Rs.

This graph shows a stepwise increase in the total cost. Relevant range in this graph is of 100 numbers of units.

Semi Variable Cost

It is also known as mixed cost. It is the cost which is part fixed and par variable. It is in fact the mixture of both behaviors.

Examples include: Utility bills – there is a fixed line rent plus charges for units consumed.

Salesman’s salary – there is a fixed monthly salary plus commission per units sold.

The graph of semi variable cost is as follow:

Rs.

Cost

100 200 300 400 500 Output

This graph shows a fixed cost of Rs. 2,000 and there after the cost is variable.

COST BEHAVIOR PER UNIT OF PRODUCTION

Cost per unit behaves differently than the total cost of production. Following tables show the difference in behavior.

Increasing Production Volume Situation

Decreasing Production Volume Situation

	Per Unit	Total
Fixed Cost	Increase	Constant
Variable Cost	Constant	Decrease
Total Cost	Increase	Decrease

Increase or decrease in production volume causes no change to the variable cost per unit it remains constant, assuming there is not rebate in case of bulk purchase and the labor receives constant rate despite change in production volume.

Whereas, increase in production volume causes a decrease in fixed cost per unit and in the same way a decrease in production volume causes an increase in fixed cost per unit.

Following example helps understanding this concept.

Total fixed cost = Rs. 4,000

Per unit variable cost = Rs. 3

Cost per unit at different activity levels 1000, 2000, 4000, and 5000 units

	1000 units		2000 units		4000 units		5000 units
	Rs. Per Unit	Total Rs.	Rs. Per Unit	Total Rs.	Rs. Per Unit	Total Rs.	Rs. Per Unit	Total Rs.
Fixed Cost	4	4,000	2	4,000	1	4,000	0.8	4,000
Variable Cost	3	3,000	3	6,000	3	1,200	3	15,000
Total Cost	7	7,000	5	10,000	4	16,000	3.8	19,000

Lecture No. 1 of Financial Management

2012-02-24T18:56:00.001-08:00

: INTRODUCTION TO FINANCIAL MANAGEMENT

Learning Objectives
Understand the concept of FM and different concepts of a financial business environment. Understand the different definitions of Financial management The basic structure of the organization How we look at balance sheet from FM perspective what is internal or external environment of Financial markets Kinds of financial markets

INTRODUCTION TO FINANCIAL MANAGEMENT
FM is the management of financial resources – how to best find and use investments and financing opportunities in an ever-changing and increasingly complex environment.

Why should CS majors study FM
First of all, financial management is a core life skill; almost every one needs to understand some concepts of finance to manage his/her business & personal finances. It is generally and quite rightfully said, “Money makes the world go round”. Finance is like a life-blood for a company. Even the best of the companies and CEOs go out of the business because of poor financial management policies. Management Information Systems (MIS) and Information Technology (IT) are just a part of the overall corporate strategy which runs on finances, the major resource. So the computer sciences professionals need to have an understanding of the financial concepts to understand and contribute to the overall corporate strategy. Financial Engineering is an upcoming field that requires people with CS, math/science, and finance background. Financial engineering is the application of engineering methods to finance. One important area of study is the design, analysis, and construction of financial contracts to meet the needs of enterprises. This field is experiencing an increased demand for professionals, especially those who are trained in both the underlying mathematics/computer technologies and finance.

Definitions
Finance Finance is the science of managing financial resources in an optimal pattern i.e. the best use of available financial sources. MGT201 (Financial Management) Finance consists of three interrelated areas:1) Money & Capital markets, which deals with securities markets & financial institutions. 2) Investments, which focuses on the decisions of both individual and institutional investors as they choose assets for their investment portfolios. 3) Financial Management, or business finance which involves the actual management of firms.

Major Areas & Concepts of Financial Management
Following are some of the important areas and concepts of financial management, which would be discussed in detail in the lectures to come. Analysis of Financial Statements: Analysis of financial statement is one of the most common techniques of financial analysis, in which the financial performance and financial health of a company are analyzed based on its past performance. The following financial statements are used in the analysis process. • Profit & Loss Statement or Income Statement o Balance Sheet o Statement of Shareholders’ equity o Statement of Cash Flows Investment Decisions & Capital Budgeting: Capital budgeting is a term strictly related to investment in fixed assets; here, the term capital refers to the fixed assets that are used in production, while budget is a plan which details projected cash inflows and outflows over some future period. The following concepts and techniques are employed while analyzing investment decisions. o Interest rate formulas o Time Value of Money o Discounted Cash Flows o Net Present Value o Internal Rate of Return Risk & Return: Investors, individual or institutional, invest their money with the expectations of earning a return on their investment. How the risks and returns are related and how do investors make a choice of their portfolios is important for investment decision making. Following concepts and theories would be discussed while discussing the risk-return choices of the investor: o Uncertainty o Risk o Portfolio Theory o Capital Asset Pricing Model Corporate Financing & Capital Structure: When a firm plans to expand, it needs capital or funds. Acquisition of funds is considered to be a primary responsibility of a finance department in an organization. Financial experts attempt to find a combination of debt and equity that could increase the overall value of the company, i.e., they try to find the optimal capital structure. The following concepts would be used to understand how an optimal capital structure could be attained. o Cost of Capital o Leverage o Dividend Policy o Debt Instruments Valuation: Asset or company valuation is important not only for financial managers, but also for creditors and investors. It is important to know the value of the company or its assets to make important financing and investment choices. Different valuation techniques and factors that influence the value of a company or its financial instruments would be discussed in this section. o Share o Bond o Option o Corporate Working Capital & Inventory Management: Working capital and inventory management pertains to the effective management of current assets. As we will see, an optimal and effective utilization of working capital and inventory increases the operating efficiency of the firm. International Finance & Foreign Exchange: With the increasing importance of international trade and global markets, the role of international finance has increased manifold. In a global environment, the finance managers have more choices pertaining to investing and financing than ever before. However, it is important to understand the implications of working in a global environment, since fluctuations in the currency rates can convert a good financing or investment decision into a bad one. This section of the course would discuss the international financial environment and the financial implications of working in a global environment.

Organizational Structure

Business Legal Entities
Sole Proprietorship: It is an unincorporated business owned by one individual. Going into a business as a sole proprietor is simple – one merely has to begin business operations. Proprietorship consists of 80%of the total number of businesses worldwide. Partnership:A partnership exists whenever two or more persons associate to conduct a non-corporate business. It could be registered or unregistered. Corporation:A corporation is a limited company and a separate legal entity registered by the government. It is separate & distinct from its owners & managers. It Can be Private Limited (Pvt. Ltd.) or Public Limited (which may be listed on Stock Exchange). The businesses in the form of corporations control 80% of global sales of products and services. S-Type Corporation: S- Type corporations are Limited Liability Corporations without double taxation. In a regular corporation, the company itself is taxed on business profits. In addition, the owners pay individual income tax on money that they draw from the corporation as salaries, bonuses, or dividends. In contrast, in an S corporation, all business profits "pass through" to the owners, who report them on their personal tax returns (as in sole proprietorships, partnerships, and Limited Liability Companies). The S corporation itself does not pay any income tax, although a co-owned S corporation must file an informational tax return like a partnership or Limited Liability Companies – to tell the tax authorities what each shareholder's portion of the corporate income is.

Balance Sheet – An FM Perspective

Internal and External Business Environment
Internal Business Environment: Internal environment of business normally consists of the following. i. Finance ii. Marketing iii. Human Resources iv. Operations (Production, Manufacturing) v. Technology vi. Other Functions (Logistics, Communications) External Business Environment: The following business environment factors outside an organization have a profound effect on the functions and operations of an organization. i. Customers ii. Suppliers iii. Competitors iv. Government/Legal Agencies & Regulations v. Macro Economy/Markets: vi. Technological Revolution

Financial Markets

Capital Markets: These are the markets for the long term debt & corporate stocks.

Stock Exchange:A stock exchange is a place where the listed shares, Term finance certificates (TFC) and national investment trust units (NIT) are exchanged and traded between buyers and sellers.
Long term bonds: Long term government & corporate bonds are also traded in capital markets.

Money Markets: Money market generally is a market where there is buying and selling of short term liquid debt instruments. (Short term means one year or less). Liquid means something which is easily en-cashable; an instrument that can be easily exchanged for cash. Following financial instruments are traded in money markets.

Short term Bonds

o Government of Pakistan: Federal Investment Bonds (FIB), Treasury-Bills (T-Bills)

o Private Sector: Corporate Bonds, Debentures

Call Money, Inter-bank short-term and overnight lending & borrowing

Loans, Leases, Insurance policies, Certificate of Deposits (CD’s)

Badlah (money lending against shares), Road-side money lenders

Real Assets or Physical Asset Markets: Following are the active markets of real and physical assets in Pakistan

o Cotton Exchange, Gold Market, Kapra Market

o Property (land, house, apartment, warehouse)

Computer hardware, Used Cars, Wheat, Sugar, Vegetables, etc

Lecture No. 3 of COMMUNICATION

2012-02-24T12:10:00.002-08:00

THEORIES OF COMMUNICATION
Introduction

We have been discussing how important communication will be for your success in business communication. Communication does not occur haphazardly. Nor does it happen all at once. It is more than a single act. It is a dynamic, transactional (two way) process that can be broken into different phases. To have a better understanding of the process of communication, we need to look at different theories of it.

Electronic Theory

One very influential theory is called the mathematical or electronic theory of communication.
This idea emphasized the technical problems of transmitting a message from a sender to a receiver.
It is based on, and uses the language of, electronics.
The message begins with an information source, the mind of the sender (writer or speaker), who encodes a message into words and sentences. The message is transmitted as a signal (marks on paper or sound waves) through a channel, where it may be distorted by noise (such as smudged typing or acoustical problems). As a last step, the receiver (listener or reader) decodes the message. Look at the following illustration of this theory.

Message
Communicator Audience
As “sender” as “receiver”

The electronic theory is helpful because it introduces the ideas of senders and receivers and of possible interference. It emphasizes one important aspect of communication: accuracy.
Its usefulness is limited, people are not machines. It may be possible to design perfectly
an accurate electronic communication system but not a human one. Emphasis on accuracy
ignores many other important dimensions of the situation in which we communicate. One may express an idea very accurately, but other may think he does not have the right to talk, so we need to understand other theories too.

Social Environment Theory
Social environment theory is of the social and behavioral scientists. It says that we must consider the situation, the social context in which we will work. When we work and communicate together, we all participate in a social situation Within that situation, each agrees to assume certain roles – such as “compromiser,” “initiator,” “or “encourager” – based on our part in the activity. We each have a certain status prescribed officially, such as our job title. We need to understand the rules, or the “culture,” of the environment in order to communicate: both the official rules – such as company policies and practices – and those unwritten rules regarding to whom, how, and when, and for how long it is appropriate for us to communicate within a certain organization. Look at the following illustration of this theory. Message Communicator Audience As “sender” as “receiver” Within a certain environment Social environment is helpful because it adds the important dimension of the specific social situation. Too often, inexperienced business people neglect to take into account role status and rules when they communicate. A nicely tailored message may still fail to achieve its objective if you write to the wrong person at the wrong time

Rhetorical Theory
Third set of theorists add more dimensions to our understanding of the communication process: communication is not linear, but circular; not just sending a message to be received, but producing a response; not static, but dynamic. Rhetorical theorists provide an important addition to a communication model for business communicators Many people in business get so much absorbed in the accuracy of their message and appropriateness of the situation that they forget the third crucial variable, producing the desired response form their audience. The importance of response in business communication is illustrated in the following figure—which incorporates the ideas of accuracy (from the collective theory) and situation (from the social environment theory). This model is circular, not linear. Message Message Communicator Audience Response Response In fact, perhaps the most important difference between business communication and other forms of communication is this circular quality: your business communication effectiveness depends on the result you achieve. How can you achieve desired response? That’s what the rest of this course will be about. You will learn not only how to be more correct and accurate, and how to be more sensitive to the situation, but also how to identify your audience’s needs in order to become a better communicator.

Lecture No. 2 of Communication

2012-02-24T11:40:00.002-08:00

Flow of Communication
Introduction
An organization is a group of people associated for business, political, professional, religious, social, or other purposes. Its activities require human beings to interact and react, that is, to communicate. They exchange information, ideas, plans, order needed supplies and make decisions, rules, proposals, contracts, and agreements. All these activities require one skill that is communication. So we can say that communication is the "Lifeline" of every organization.
An exchange of information within an organization is called internal communication. It takes place at different levels -- downwards, upwards and horizontal.
To exchange information within and outside the organization we use a variety of formal and informal forms of communication that carry the flow of information.

Flow of Internal Communication

Formal

Planned communication
Memo, letter, report, e-mail & faxes that follow company’s chain of command

Internal Communication

Casual Communication among employees
e-mail face to face conversation
phone calls, discussions

Informal

　i) Internal Communication
The formal Communication Network
• The formal flow of information follows the official chain of command.
Following is the table to help us understand this official chain of command.
Direction of Flow Within the Organization

Upwards communication by employees to top management

Downwards communication by top management to employees

Horizontal communication from one employee/dept to another

Downward Flow External Communication
Communication that takes place outside the organization is called external communication. The right letter, proposal, report, telephone call, or personal conversation can win back an angry customer, create a desire for a firm’s product or services, encourage collections, motivate performance, and in general, create goodwill.
Flow of External Communication

Formal

Planned communication with outsides
Memo, letter, report
e-mail, Fax’s that follow company’s chain of command

External Communication

Casual Communication among Customers,
suppliers, investors, e-mail face to face conversation
phone calls, discussions

Informal

Various Aspects of External Communication
Informal External Communication Although external communication is formal, informal contacts with outsiders are important for learning customer’s needs. Plenty of high level manager recognize the value of keeping in touch with "the real world by creating opportunities to talk with and get feedback from customers and frontline companies.
Ways of External Communication Letters, pamphlets, annual reports, interviews with the news media etc. Any of these forms is used to communicate externally. It depends on the needs of the communication.
Effective communication internally and externally can help create a good reputation and have a positive impact on the ultimate success of the individual as well as organization.

ENG301 - Lecture No. 1: Communication

2012-02-24T11:24:00.000-08:00

Introduction

You may say that communication is important and that you spend a lot of time doing it. But you’re pretty good at communicating. After all you talk to people, write notes, read books, get along with other people, and make myself understood already. Why should you study communication?”

The apparent simplicity of communication is deceptive. Just because we all communicate every day does not make us good communicators. Just because some aspects of effective communication are based on common sense does not mean common sense alone is enough. Skilled communicators draw on an extensive and complex body of knowledge, including semantics (the study of word choice), linguistics (the study of language), rhetoric (the study of writing and speaking effectively), psychology, sociology, graphic design, and even computer science. You will explore and apply the scholarship and research from all of these fields in your study of communication.

“Why then,” you may well ask finally, “study business communication specifically? Communication is communication: I’ve taken plenty of English courses and communicated in every one of my other courses.”

Definition of Communication

The word communication means the act or process of giving or exchanging of information, signals, or messages as by talk, gestures, or writing. Technically speaking, in the act of communication, we make opinions, feelings, information, etc known or understood by others through speech, writing or bodily movement.
Why do we communicate?
The purpose of any given communication may be:a) to initiate some action;b)
c) to establish, acknowledge or maintain links or relations with other people.
Initiating Action
Initiating action may be achieved by two basic categories of communication.
Expressing needs and requirements.
This can range from a baby’s cry – or even the bleep of an alarm clock – to an adult’s more precious expression of needs and wants. In a business organization, it would include briefings, instructions and procedure manuals. This will only be effective where the other person is willing to satisfy the needs.
Persuading and motivating others
It means to carry out the desired course of action" in other words, giving them a reason (other than one’s own want or need) to perform that action. Persuasion of this kind is likely to be a major element in marketing and sales: a sales reply cannot simply ask a customer to buy the product because she, the sale rep, needs a success. She must show that there are benefits to the consumer, which will make the purchase worthwhile.
Imparting Information
Imparting information, ideas, attitudes, beliefs and feelings may have any number of specific purposes. to impart information, ideas, attitudes, beliefs or feelings; and /or· Creating awareness· Creating understanding· Persuading others·
Information gathering is a constant activity of human beings. We receive a great deal of data and information in our daily lives, only some of which we seek or consciously absorb. Think about it: news bulletins, books, bank statements, business information, gossip, thing people tell you, things you ask them. This list is endless.
Remember that other people may be seeking information in the messages you ‘send’ (and in the tone of your voice and other indications of what is ‘between the lines’). This information may or may not be something you wish to communicate: you will need to be aware of it before your listener/reader is.
Establishing relations
Establishing, acknowledging and maintaining relations with other people is a vital function of communication. Influencing othersImportanceCommunicating effectively in speaking and writing is useful in all areas of business, such as management, technical, clerical, and social positions as we have just seen.
The ability to communicate well has always given advantages to those who possess it. Communication has a rich history. The ancient world, both the East and the West, depended on oral communication. In ancient Greece and Rome, it was necessary to communicate when dealing with matters in assemblies and the courts. During the Medieval and Renaissance Periods, the oral tradition progressed. As writing became more important as a permanent record of communication, authors and books on written communication principles appeared.
So we can say that some of today’s principles of writing are a mixture of ancient oral and written traditions.Advantages of Communication in your CareerYour success in your career is based on your ability to do well in written and oral communication.
This ability to communicate effectively is a valuable asset for you.· If your career requires mainly mental rather than manual labor, your progress will depend on how effectively you communicate your ideas to others who need or should receive them.· Strong communication skills are found in every job description listed by companies’ advertising positions. Communication is a primary responsibility in many careers, such as customer relations, labor relations, marketing personnel, public relations, sales, and teaching.· Communication is also required in government and non profit organizations. There skills play a major role at every level.Communication&Global MarketThe way you communicate both within and outside your own country affects everything you do. Moreover your ability to speak and write effectively will also make a difference to your organization. These qualities will help you to be successful in dealing with international business people.
Always remember that "To the customer, you are the company". Your dealing with customers, clients and the public reflects the company you represent. Important communications can make a difference to your company because each message communicates the essential quality and culture of your company and can either build goodwill or destroy it.
Messages written to international customers and other business contacts are sensitive to the readers. Your goodwill as well as your organization’s is at stake. So be very careful while communicating with international people.
The ability to communicate effectively with others is repeatedly named as a top quality of a successful businessman. You as a businessman may be a very intelligent person; but if you can’t get your message across to the other, you will be thought of as less intelligent than you are because ideas are common, but the ability to clearly communicate ideas to others is rare.
If you are a better communicator, customers and business associates form better impression of you and your organization. This impression is based solely upon your ability to communicate both oral and written messages. Effective business message builds or retains goodwill which is a priceless commodity. Because the exchange of written communication is vital to a businessman for promoting goodwill, the art of producing effective correspondence will help ensure your success in business.
So, your ability to communicate is, in fact, your trademark. The memos, letters and reports you write, demonstrate your ability, or lack of ability to communicate. Presenting yourself through your communication will project a favorable image as well as promote successful business both internally and externally.
Besides, as a businessman you are required to run the working of your organization smoothly because you are to clearly transfer your objectives, policies, method of working etc. to the people working with you at different levels, so this ability to communicate is very crucial for you as a businessman for basic managerial functions.
As a businessman you will regularly plan design and control affairs to maximize your production and minimize your cost. Your ability to communicate effectively is going to help you from the brainstorming step to implementing the objectives that you chalk out for the promotion of your business.
Another factor that is important for a businessman to achieve the desired objectives is decision making. Here again ability to communicate both orally and in writing helps you make the most of yourself and your organization.
Above all , your ability to communicate helps you in understanding human relationships. Being an effective communicator you can interact effectively and positively with others. This situation results in an open climate of communication within organization as well as outside it. So communication is of paramount importance for a businessman to be successful in his business. Developing the right attitude"To the customer, you are the company." Your attitude when dealing with customers, clients, and the public reflect on the company you represent. Your attitude will reflect your country and your culture.
Each message communicates the essential quality and culture of your company and can either build goodwill or destroy it.
Doing an honest job enthusiastically and competently helps both the doer and the receiver. Answering even routine inquiries should and can be an interesting challenge.Preparing AdequatelyMost of the people can learn to communicate effectively for business if they are willing to devote whatever effort is necessary to prepare themselves adequately. In addition to the proper goodwill-building attitude, the following qualities are desirable:
Careful, sound judgment when choosing ideas and facts for each message.
Patience and understanding, even with unjustly insulting persons.
Integrity, backed up by a valid code of ethics.
Reasonable facility with the English language.
Applied knowledge of the communication process and principles and of successful methods for sending and receiving messages. Advancement in TechnologyThe internet, e-mail, voice mail, faxes, pagers, and other wireless devices have revolutionized the way people communicate. Such technological advances are new and better tools to the workplace but also increase the speed, frequency, and reach of communication. People from opposite ends of the world can work together effectively, 24 hours a day. Moreover, advances in technology make it possible for more and more people to work away from the office-in cars, airports, hotels and at home. So it is easier to understand why communication is so important.

Advancement in
internet, e-mail, voice mail, faxes, pagers, and other wireless devices have revolutionized the way people communicate. Such technological advances are new and better tools to the workplace but also increase the speed, frequency, and reach of communication. People from opposite ends of the world can work together effectively, 24 hours a day. Moreover, advances in technology make it possible for more and more people to work away from the office-in cars, airports, hotels and at home. So it is easier to understand why communication is so important.

Knowledge of the cultural conventions of your audienceKnowledge of the cultural conventions of your audience Careful, sound judgment when choosing ideas and facts for each message.
Patience and understanding, even with unjustly insulting persons.
Integrity, backed up by a valid code of ethics.
Reasonable facility with the English language.
Applied knowledge of the communication process and principles and of successful methods for sending and receiving messages.

2012-02-19T03:58:00.000-08:00

Introduction to Economics –ECO401 VU
Lesson 01
INTRODUCTION TO ECONOMICS
WHAT IS ECONOMICS?
Economics is not a natural science, i.e. it is not concerned with studying the physical world like
chemistry, biology. Social sciences are connected with the study of people in society. It is not
possible to conduct laboratory experiments, nor is it possible to fully unravel the process of
human decision-making.
“Economics is the study of how we the people engage ourselves in production, distribution and
consumption of goods and services in a society.”
The term economics came from the Greek for oikos (house) and nomos (custom or   law),
hence "rules of the household.
Another definition is: “The science which studies human behavior as a relationship between
ends and scarce means which have alternative uses.”
BRANCHES OF ECONOMICS
Normative economics:
Normative economics is the branch of economics that   incorporates value judgments about
what the economy should be like or what particular policy actions should be recommended to
achieve a desirable goal. Normative economics looks at the desirability of certain aspects of
the economy. It underlies expressions of support for particular economic policies. Normative
economics is known as statements of opinion which cannot be proved or disproved, and
suggests what should be done to solve economic problems,   i-e unemployment should be
reduced. Normative economics discusses "what ought to be".
Examples:
1-A normative economic theory not only describes how money-supply growth affects inflation,
but it also provides instructions that what policy should be followed.
2- A normative economic theory not only describes how interest rate affects inflation but it also
provides guidance that what policy should be followed.
Positive economics:
Positive economics, by contrast, is the analysis of facts and behavior in an economy or “the
way things are.” Positive statements can be proved or disproved, and which concern how an
economy works,   i-e   unemployment   is   increasing   in   our   economy. Positive   economics   is
sometimes defined as the economics of "what is"
Examples:
1- A positive economic theory might describe how money-supply growth affects inflation, but it
does not provide any instruction on what policy should be followed.
2- A positive economic theory might describe how interest rate affects inflation but it does not
provide any guidance on whether what policy should be followed.
We the people: includes firms, households and the government.
Goods are the things which are produced to be sold.
Services involve doing something for the customers but not producing goods.
FACTORS OF PRODUCTION
Factors of production are inputs into the production process. They are the resources needed
to produce goods and services. The factors of production are:
• Land includes the land used for agriculture or industrial purposes as well as natural
resources taken from above or below the soil.
• Capital consists of durable producer goods (machines, plants etc.) that are in turn
used for production of other goods.
• Labor consists of the manpower used in the process of production.
• Entrepreneurship includes   the managerial   abilities   that   a   person   brings   to   the
organization. Entrepreneurs can be owners or managers of firms.
© Copyright Virtual University of Pakistan 1Introduction to Economics –ECO401 VU
Scarcity does not mean that a good is rare; scarcity exists because economic resources are
unable to supply all the goods demanded. It is a pervasive condition of human existence that
exists because society has unlimited wants and needs, but   limited resources used for their
satisfaction. In other words, while we all want a bunch of stuff, we can't have everything that
we want.
Rationing is a process by which we limit the supply or amount of some economic factor which
is   scarcely   available.   It   is   the   distribution   or   allocation   of   a   limited   commodity,   usually
accomplished based on a standard or criterion. The two primary methods of   rationing are
markets and governments. Rationing is needed due to the scarcity problem. Because wants
and needs are unlimited, but resources are limited, available commodities must be rationed
out to competing uses.
ECONOMIC SYSTEMS
There are different types of economic systems prevailing in the world.
Dictatorship:
Dictatorship is a system in which economic decisions are taken by the dictator which may be
an individual or a group of selected people.
Command or planned economy:
A command or planned economy is a mode of economic organization   in which   the key
economic   functions   –   for   whom,   what,   how   to   produce   are   principally   determined   by
government directive. In a planned economy, a planning committee usually government or
some group determines the economy’s output of goods and services. They decide about the
optimal mix of resources in the economy. They also decide how the factor of production needs
to be employed to get optimal mix.
Free market/capitalist economy:
A free market/capitalist economy is a system in which the questions about what to produce,
how to produce and for whom to produce are decided primarily by the demand and supply
interactions in the market. In this economy what   to produce is thereby determined by the
market price of each good and service in relation to the cost of producing each good and
service.
In a free economy the only goods and services produced are those whose price in the market
is at least equal to the producer’s cost of producing output. When a price greater than the cost
of producing that good or service prevails, producers are induced to increase the production. If
the product’s price falls below the cost of production, producers reduce supply.
Islamic economic system:
This system is based on Islamic values and Islamic rules i-e zakat, ushr, etc. Islam forbids
both the taking and giving of interest. Modern economists, too, have slowly begun to realize
the futility of interest. The Islamic economic principles if strictly followed would eliminate the
possibility of accumulation of wealth in the hands of a few and would ensure the greater
circulation   of money   as well   as   a wider   distribution   of wealth.   Broadly   speaking   these
principles are (1) Zakat or compulsory alms giving (2) The Islamic law of   inheritance which
splits the property of an individual   into a number of shares given to his relations (3) The
forbiddance of   interest which checks accumulation of wealth and this strikes at   the root of
capitalism.
Pakistan case: A mixed economy
In Pakistan, there is mixed economic system. Resources are governed by both government
and individuals. Some resources are in the hand of government and some are in the hand of
public. Optimal mix of resources is decided by the price mechanism i-e by the market forces of
demand and supply. Pakistan economy thus consists of   the characteristics of both planned
economy and free market economy. People are free to make their decisions. They can make
their properties. Government controls the Defence.
© Copyright Virtual University of Pakistan 2Introduction to Economics –ECO401 VU
CIRCULAR FLOW OF GOODS & INCOME
There are two sectors in the circular flow of goods & services. One is household sector and
the other is the business sector which includes firms. Households demands goods & services,
Firms   supply   goods & services. An   exchange   takes   place   in   an   economy.   In monetary
economy, firms exchange goods & services for money. Firms’ demands factors of production
and households supply factors of production. Firms pay the payment in terms of wages, rent,
etc. This is circular   flow of goods. On the other hand, household gives money to firms to
purchase the goods & services from firms, and firms’ gives money to households in return for
factors of production.
DISTINCTION BETWEEN MICRO & MACRO ECONOMICS
Micro Economics:
The branch of economics that studies the parts of   the economy, especially such topics as
markets, prices,   industries, demand, and supply.   It can be thought of as the study of   the
economic trees, as compared to macroeconomics, which is study of   the entire economic
forest. Microeconomics is a branch of economics that studies how individuals, households,
and firms make decisions to allocate limited resources typically in markets where goods or
services are being bought and sold. It also examines how these decisions and behaviors affect
the supply and demand for goods and services, which determines prices, and how prices, in
turn, determine the supply and demand of goods and services.
Macro Economics:
The branch of economics that studies the entire economy, especially such topics as aggregate
production, unemployment, inflation, and business cycles. It can be thought of as the study of
the economic forest, as compared to microeconomics, which is study of the economic trees.
Macroeconomics,   involves the "sum total of economic activity, dealing with the issues of
growth,   inflation, and unemployment and with national economic policies relating to these
issues” and the effects of government actions (e.g., changing taxation levels) on them.

© Copyright Virtual University of Pakistan 3
Introduction to Economics –ECO401 VU
Lesson 02
INTRODUCTION TO ECONOMICS (CONTINUED)
COST & BENEFIT ANALYSIS
Rational   choice is   the   choice   based   on   pure   reason   and without   succumbing   to   one’s
emotions or whims. Consumers can decide about   the rational decision by using cost and
benefit   analysis. Rational   choice   is   a   general   theory   of   human   behavior   that   assumes
individuals   try   to make the most efficient decisions possible in an environment of scarce
resources. By "efficient" it is meant that humans are "utility maximizes" - for any given choice a
person seeks the most benefit   relative to costs. Consumers can make about   the rational
decision   by   using cost   and benefit   analysis. Consumers want   to maximize   their   level   of
satisfaction relative to their cost. Rational choice is also the optimal choice.
Optimum means producing the best possible results (also optimal).
Equity in economics means a situation in which every thing is treated fairly or equally, i.e.
according to its due share. So if the lives of all individuals are deemed to have equal value,
equity would demand that all of them have equal financial net worth.
Nepotism means doing unfair favors for near ones when in power.
Rational   choice is   the   choice   based   on   pure   reason   and without   succumbing   to   one’s
emotions or whims.
Barter trade is a non-monetary system of trade in which “goods” not money is exchanged.
This was the system used in the world before the advent of coins and currency.
HOW CONSUMER DECIDES ABOUT OPTIMAL CHOICE
The consumers decides about the optimal choice by using the cost and benefit analysis which
maximizes the benefit relative to the cost.
Example:
Benefit
(Salary)
Cost
(Transportation)
Net Benefit
= Benefit – Cost
Job A (Lahore) 15,000 1,000 14,000
Job B
(Gujranwala)
20,000 7,000 13,000
Since net benefit of job A is greater so the ration choice is job A which is in Lahore.
HOW PRODUCERS DECIDES ABOUT OPTIMAL CHOIE
Assume that a firm which is thinking to open a new production line of car manufacturing.
Rational decision involves the cost and benefit of that car’s production.
Costs will   be   additional   labor   employed,   additional   raw material   and   additional   parts   &
components that have to be bought.
Benefits will be additional revenue that the firm will get by selling the additional number of
cars.
It will be profitable to invest if revenue is greater than the cost.
OPPORTUNITY COST
The opportunity cost of a particular choice is the satisfaction that would have been derived
from the next   best alternative   foregone;   in other words,   it   is what must   be given up or
sacrificed in making a certain choice or decision.
Example:
Let’s take the decision to buy the book or not, if you will not buy the book then you will be
involved in many other activities. In the following table, opportunity Cost of buying the book
and not giving charity = 20 SU, which is the benefit derived from giving charity. You will buy
the book if the benefit from other alternatives is les than the benefit derived from buying of
book.
© Copyright Virtual University of Pakistan 1Introduction to Economics –ECO401 VU
Cost
Benefit Derived in
Satisfaction Unit
Book 200 10
Clothes 200 5
Charity 200 20
MARGINAL COST AND MARGINAL BENEFIT
Marginal cost is the increment to total costs of producing an additional unit of some good or
service. There are other broader definitions as well.
Marginal benefit is the increment to total benefit derived from consuming an additional unit of
good or service. There are other broader definitions as well.
PRODUCTION POSSIBILITY FRONTIER (PPF)
Production   possibility   frontier   (PPF) is   the   curve which   joins   all   the   points   showing   the
maximum amount of goods and services which the country can produce in a given time with
limited   resources,   given   a   specific   state   of   technology. A production   possibilities   frontier
represents the boundary or frontier of the economy's production capabilities. That's why it's
termed a production possibilities frontier (or PPF). As a frontier, it is the maximum production
possible given existing (fixed) resources and technology.
Table: Choice & Opportunity cost revisited: The law of increasing opportunity cost
Rice
(Bags)
Cotton
(Bushels)
Opportunity Cost
of Additional Unit
A 0 10
B 1 9 1
C 2 7 2
D 3 4 3
E 4 0 4
This   table   represents   the   alternative   combinations   of   rice   and   cotton   for   a   hypothetical
economy which is producing only 2 goods. At point A only cotton is produced,   rice is not
produced. In order to produce one unit of rice, we have to give up one unit of cotton (10-9=1).
So the opportunity cost is 1 at point B. further in order to produce next unit of rice, we have to
give up 2 units of cotton (9-7=2). So the opportunity cost of next additional unit is 2 and so on.
This table shows that opportunity cost   is increasing with each additional unit.   It means we
have to give up higher and higher units of cotton in order to produce each additional unit of
rice. This is the principle of   increasing opportunity cost.     If opportunity cost decreases with
each additional unit produces,   then it   is the principle of decreasing opportunity cost. And if
opportunity cost remains constant with each extra unit produced, it is the principle of constant
opportunity cost.
The law of increasing opportunity cost is what gives the curve its distinctive convex shape.
Points on the PPF show the efficient utilization of   resources. Points inside the PPF show
inefficient use of   resources. Points outside the PPF show that some of   the resources are
unemployed or not utilized. PPF curve shifts upward due to technological advancements.   If
there is improvement in technology to produce the output, then total output will increase and
PPF will shift outward.
OPPORTUNITY COST & PRODUCTION POSSIBILITIES
© Copyright Virtual University of Pakistan 2Introduction to Economics –ECO401 VU
The production possibilities analysis, which is the alternative combinations of two goods that
an economy can produce with given resources and technology, can be used to illustrate
opportunity cost--the highest valued alternative foregone in the pursuit of an activity. The PPF
showed in the video lecture slide shows the principle of increasing opportunity cost.
PPF AND ITS RELATIONSHIP WITH MACROECONOMICS
In the graph of PPF, Points within the PPF are inefficient and it is the rare possibility in the real
world.     Inefficient means that   it may not be using its available resources. May be some
workers are unemployed creating the macro economic problem of unemployment or may be
capital is not using properly. Points outside the PPF are unattainable since the PPF defines
the maximum output produced at the given time period so there is no possibility to produce
output outside the PPF. Here in PPF, we are not concerned with the combinations of goods
which is a micro economic issue rather we are concerned with the overall output produced
which is a macroeconomic issue.
Economic growth is an increase in the total output of a country over time. It is the long-run
expansion of the economy's ability to produce output. When GDP of a country is increasing it
means that country is growing economically. Economic growth is made possible by increasing
the quantity or quality of the economy's resources (labor, capital, land, and entrepreneurship).
© Copyright Virtual University of Pakistan 3Introduction to Economics –ECO401 VU
EXERCISES
Could production and consumption take place without money?   If you think they could,
give examples.
Yes. People could produce things for their own consumption. For example, people could grow
vegetables   in   their   garden   or   allotment;   they   could   do their   own   painting   and   decorating.
Alternatively people could engage in barter: they could produce things and then swap them for
goods that other people had produced.
Must goods be at least temporarily unattainable to be scarce?
Goods need not be unattainable to be scarce. Because people’s incomes are limited, they can
not have everything they want from shops, even though the shops are stocked full. If all items in
shops were free, the shelves would soon be emptied!
If we would all like more money, why does the government not print a lot more? Could it
not thereby solve the problem of scarcity ‘at a stroke’?
The problem of scarcity is one of a lack of production.    Simply printing more money without
producing more goods and services will merely lead to inflation. To the extent that firms cannot
meet   the extra demand (i.e.   the extra consumer expenditure) by extra production,   they will
respond by putting up their prices.   Without extra production, consumers will be unable to buy
any more than previously.
Which of the following are macroeconomic issues, which are microeconomic ones and
which could be either depending on the context?
a) Inflation.
b) Low wages in certain service industries.
c) The rate of exchange between the dollar and the rupee.
d) Why the price of cabbages fluctuates more than that of cars.
e) The rate of economic growth this year compared with last year.
f) The decline of traditional manufacturing industries.
a) Macro. It refers to a general rise in prices across the whole economy.
b) Micro. It refers to specific industries
c) Either. In a world context, it is a micro issue, since it refers to the price of one currency in
terms of one other. In a national context it is more of a macro issue, since it refers to the
exchange rate at which all Pakistanis goods are traded internationally. (This is certainly
a less clear–cut division that in (a) and (b) above.)
d) Micro. It refers to specific products.
e) Macro. It refers to the general growth in output of the economy as a whole.
f)     Micro (macro in certain contexts). It is micro because it refers to specific industries. It
could,   however,   also   help   to   explain   the   macroeconomic   phenomena   of   high
unemployment or balance of payments problems.
Assume that you are looking for a job and are offered two. One is more unpleasant to do,
but pays more. How would you make a rational choice between the two jobs?
You should weigh up whether the extra pay (benefit) from the better paid job is worth the extra
hardship (cost) involved in doing it.
How would the principle of weighing up marginal costs and benefits apply to a worker
deciding how much overtime to work in a given week?
The worker would consider whether the extra pay (the marginal benefit) is worth the extra effort
and loss of leisure (the marginal cost).
Would it ever be desirable to have total equality in an economy?
The objective of total equality may be regarded as desirable in itself by many people. There are
two problems with this objective, however. The first is in defining equality. If there were total
equality of incomes then households with dependants would have a lower income per head than
© Copyright Virtual University of Pakistan 4Introduction to Economics –ECO401 VU
households where everyone was working. In other words, equality of incomes would not mean
equality in terms of standards of living.
If on the other hand, equality were to be defined in terms of standards of living, then should the
different needs of different people be taken into account? Should people with special health or
other needs have a higher income? Also, if equality were to be defined in terms of standards of
living, many people would regard it as unfair   that people should receive different   incomes
(according to the nature of their household) for doing the same amount of work.
The second major problem concerns incentives. If all jobs were to be paid the same (or people
were to be paid according to the composition of their household), irrespective of people’s efforts
or skills, then what would be the incentive to train or to work harder?
If there are several other things you could have done, is the opportunity cost the sum of
all of them?
No. It is the sacrifice involved in the next best alternative.
What is the opportunity cost of spending an evening revising for an economics exam?
What would you need to know in order to make a sensible decision about what to do that
evening?
The next best alternative might be revising for another exam, or it might be taking time off to
relax or to go out.   To make a sensible decision, you need to consider these alternatives and
whether they are better or worse for you than studying for the economics exam.    One major
problem here is the lack of information.   You do not know just how much the extra study will
improve your performance in the exam, because you do not know in advance just how much you
will learn and you do not know what is going to be on the exam paper.   Similarly you do not
know this information for studying for other exams.
Make a list of the benefits of higher education.
The benefits to the individual   include:   increased future earnings;   the direct benefits of being
more educated; the pleasure of the social contacts at university or college.
Is the opportunity cost to the individual of attending higher education different from the
opportunity costs to society as a whole?
Yes.    The opportunity cost to society as a whole would include the costs of providing tuition
(staffing costs, materials, capital costs, etc.), which could be greater than any fees the student
may have to pay. On the other hand, the benefits to society would include benefits beyond those
received by the individual. For example, they would include the extra profits employers would
make by employing the individual with those qualifications.
There is a saying in economics, ‘There is no such thing as a free lunch’. What does this
mean?
That there is always (or virtually always) an opportunity cost of anything we consume.   Even if
we do not incur the cost ourselves (the ‘lunch’ is free to us), someone will incur the cost (e.g. the
institution providing the lunch).
Are any other (desirable) goods or services truly abundant?
Very few! Possibly various social interactions between people, but even here, the time to enjoy
them is not abundant.
Under what circumstances would the production possibility curve be (a) a straight line;
(b) bowed in toward the origin? Are these circumstances ever likely?
a) When there are constant opportunity costs. This will occur when resources are equally
suited to producing either good. This might possibly occur in our highly simplified world
of just two goods. In the real world it is unlikely.
b) When   there   are   decreasing   opportunity   costs.     This   will   occur   when   increased
specialization in one good allows the country to become more efficient in its production.
It gains ‘economies of scale’ sufficient to offset having to use less suitable resources.
Will   economic growth necessarily involve   a parallel outward shift of   the production
possibility curve?
© Copyright Virtual University of Pakistan 5Introduction to Economics –ECO401 VU
No.   Technical progress, the discovery of raw materials, improved education and training, etc.,
may favour one good rather than the other.   In such cases the gap between the old and new
curves would be widest where they meet the axis of the good whose potential output had grown
more.
Which of   the following are positive statements, which are normative statements and
which could be either depending on the context?
a) Cutting the higher rates of income tax will redistribute incomes from the poor to
the rich.
b) It is wrong that inflation should be reduced if this means that there will be higher
unemployment.
c) It is wrong to state that putting up interest rates will reduce inflation.
d) The government should raise interest rates in order to prevent the exchange rate
falling.
e) Current government policies should reduce unemployment.
a) Positive. This is merely a statement about what would happen.
b) Normative. The statement is making the value judgment that reducing inflation is a less
desirable goal than the avoidance of higher unemployment.
c) Positive. Here the word ‘wrong’ means ‘incorrect’ not ‘morally wrong’. The statement is
making a claim that can be tested by looking at the facts. Do higher interest rates reduce
inflation, or don’t they?
d) Both. The positive element is the claim that higher interest rates prevent the exchange
rate falling. This can be tested by an appeal to the facts. The normative element is the
value judgment that the government ought to prevent the exchange rate falling.
e) Either.     It depends what   is meant.     If   the statement means that current government
policies are likely to reduce unemployment,   the statement   is positive.     If, however,   it
means that the government ought to direct its policies towards reducing unemployment,
the statement is normative.
© Copyright Virtual University of Pakistan 6

MKT501 Marketing Management Final 2010 Paper solved by vuZs Team

2012-02-17T06:14:00.002-08:00

Question No: 1 ( M a r k s: 1 ) http://vuzs.net

Critical path analysis is a part of which of the following?

► Implementation stage

► Marketing strategies

► Executive summary

► Financial summary

Implementation: Personnel requirements, assigning responsibilities, give incentives, training on selling methods, financial requirements, management information systems requirements, month-by-month agenda, pert or critical path analysis, monitoring results and benchmarks, adjustment mechanism, contingencies (What if's) need to be worked out.

Question No: 2 ( M a r k s: 1 ) http://vuzs.net

Packaging used for the ice creams is an example of which of the following?

► Decorative packaging

► Transport packaging

► Secondary packaging

► Primary packaging

Ref:Primary packaging: First-level product packaging such as the bottle, can, jar, tube, etc., that contains the item sold. It is the last packaging thrown by the consumer. It requires protection, tampering resistance, and special physical, chemical, or biological needs. It also shows the product that is labelled to show any nutrition information on the food being consumed.

Question No: 3 ( M a r k s: 1 ) http://vuzs.net

A brand targeted to a high price elasticity market segment is called:

► Premium brand

► Economy brand

► Fighting brand

► Costly brand

An Economy brand is a brand targeted to a high price elasticity market segment.

Question No: 4 ( M a r k s: 1 ) http://vuzs.net

All of the following are true about price EXCEPT:

► Price is independent of the other elements of the marketing mix

► Price is the monetary value of a product

► Price is most flexible tool in the marketing mix

► Price is marketing mix element which produces revenue

Question No: 5 ( M a r k s: 1 ) http://vuzs.net

Which of the following price will be used for the heart pacemaker?

► Skimming price

► Penetration price

► Psychological price

► Premium price

People will buy a premium priced product because they require flawless performance in this application - The cost of product malfunction is too high to buy anything but the best - example: heart pacemaker.

Question No: 6 ( M a r k s: 1 ) http://vuzs.net

During which year a revolution came that transformed advertising into a modern, more scientific approach in which creativity was focused making advertisements interesting to read?

► 1913s

► 1940s

► 1960s

► 1930s

The 1960s saw advertising transform into a modern, more scientific approach in which creativity was allowed to shine, producing unexpected messages that made advertisements interesting to read.

Question No: 7 ( M a r k s: 1 ) http://vuzs.net

When was mass media introduced?

► 1950s

► 1940s

► 1930s

► 1920s

Mass media: It was coined in the 1920s with the advent of nationwide radio networks and of mass-circulation newspapers and magazines.

www.vuzs.net

Question No: 8 ( M a r k s: 1 ) http://vuzs.net

A company is offering a reduced price if you buy two t-shirts instead of just one. Identify the type of price discrimination?

► First degree discrimination

► Forth degree discrimination

► Third degree discrimination

► Second degree discrimination

In second degree price discrimination, price varies according to quantity sold. Larger quantities are available at a lower unit price.

Question No: 9 ( M a r k s: 1 ) http://vuzs.net

Which of the following offers an incentive to buy a product?

► Direct mail

► Public relations

► Sales promotion

► Advertising

Sales promotion: A diverse collection of incentive tools, mostly short term, designed to stimulate quicker &/or grater purchase of particular products/services by consumers or the trade. Where advertising offers a reason to buy, sales promotion offers an incentive to buy.
www.vuzs.net

Question No: 10 ( M a r k s: 1 ) http://vuzs.net

Nido has advertised that get 5% extra milk for the same price. Identify the type of consumer sales promotion technique used by Nido.

► Cents-off deal

► Price deal

► Loyalty rewards program

► Price-pack deal

Price-pack deal: The packaging offers a consumer a certain percentage more of the product for the same price (for example, 25 percent extra).

Question No: 11 ( M a r k s: 1 ) http://vuzs.net

All of the following are the objectives of sales promotion EXCEPT:

► Personal interaction between two or more people

► Invites and rewards quick consumer response

► Offers strong incentives to buy

► Attracts consumer attention

Question No: 12 ( M a r k s: 1 ) http://vuzs.net

What does BATNA stands for?

► The best alternative to a negotiated agreement

► The best available to a negotiated agreement

► The best alternating to a new agreement

► The best available to a new agreement

Best alternative to a negotiated agreement (batna)

Question No: 13 ( M a r k s: 1 ) http://vuzs.net

How marketing manager can develop strategies for each product using information from sales force management system?

► Using communication mix variables

► Using marketing mix variables

► Using product mix variables

► Using promotion mix variables

Developing marketing strategies for each of your products using the marketing mix variables of price, product, distribution, and promotion. vuzs

Question No: 14 ( M a r k s: 1 ) http://vuzs.net

Which of the following is the combination of institutions through which a seller, market products to the user?

► Marketing logistics

► Supply chain management

► Distribution channel

► Inventory management

Question No: 15 ( M a r k s: 1 ) http://vuzs.net

Outbound operations, including all fulfillment activities and transportation to customers are which type of supply chain management activities?

► Strategic level

► Tactical level

► Operational level

► Functional level

Operational Activities:

Outbound operations, including all fulfillment activities and transportation to customers. vuzs

www.vuzs.net

Question No: 16 ( M a r k s: 1 ) http://vuzs.net

What does GSCF stand for?

► Global Supply Chain Forum

► Global Supply Chain Federation

► Global Supply Chain Finance

► Greater Salina Community Foundation

Global Supply Chain Forum (GSCF).

Question No: 17 ( M a r k s: 1 ) http://vuzs.net

Which of the following is a supply chain management model promoted by the Supply-Chain Council?

► SCOR

► GSCF

► SCM

► CRM

SCOR is a supply chain management model promoted by the Supply-Chain Council.

Question No: 18 ( M a r k s: 1 ) http://vuzs.net

Which of the following is an example of agency based sales?

► Web selling

► B2 B selling

► Advertising

► Real estate

Agency-based

• Consignment

• Multi-level marketing

• Sales agents (real estate, manufacturing)

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Question No: 19 ( M a r k s: 1 ) http://vuzs.net

What is the input of consumer behavior?

► Response

► Stimuli

► Actions

► Reactions

The 'inputs' (stimuli) that the consumer receives from his or her environment.

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Question No: 20 ( M a r k s: 1 ) http://vuzs.net

Which of the following is considered as a strength to an organization?

► Competitors developing new products

► New machinery or equipment

► Lack of computing expertise

► A new or developing market

Question No: 21 ( M a r k s: 1 ) http://vuzs.net

Products that are usually purchased due to adversity and high promotional back up rather than desire are called:

► Sought goods

► Unique goods

► Unsought goods

► Preferred goods

Article (such as medical supplies) or service (such as life insurance) that consumers seldom go out looking for, and which are purchased due to adversity (or fear of adversity) instead of desire.

Question No: 22 ( M a r k s: 1 ) http://vuzs.net

Retailers are the part of:

► Broad environment

► Weak environment

► Task environment

► Competitive environment

Task environment involves immediate actors, such as suppliers, distributors, dealers and consumers etc, involved in production, distribution and promotion.

Question No: 23 ( M a r k s: 1 ) http://vuzs.net

In which section of the marketing plan you would find the detailed information about the marketing environment, market trends, customers and competitors?

► Situation analysis

► Product/market background

► Marketing strategies

► Market analysis

Current Situation - Market Analysis: Indeed, market situation must be taken into account in all details and carefully studied. Market definition, Market size, Market Segmentation, Industry Structure and strategic groupings, Competition and market share, Competitors' Strengths and Weaknesses and Market Trends must be carefully studied and analyzed.

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Question No: 24 ( M a r k s: 1 ) http://vuzs.net

For which of the following products would the manufacturer be more likely to use selective distribution?

► Bags of potato chips

► Paper clips

► Microwave ovens

► Nail clippers

Selective distribution - This is the normal pattern (in both consumer and industrial markets) where `suitable' resellers stock the product.

Question No: 25 ( M a r k s: 1 ) http://vuzs.net

Fixed costs ___________ as the number of units produced increases.

► Decrease

► Increase

► Divide in half

► Remain the same

Question No: 26 ( M a r k s: 1 ) http://vuzs.net

_______ are the sum of the _______ and _______ for any given level of production.

► Fixed costs; variable; total costs

► Fixed costs; total; variable costs

► Variable costs; fixed; total costs

► Total costs; fixed; variable costs

Question No: 27 ( M a r k s: 1 ) http://vuzs.net

In which of the following machines you insert a coin, select a song and song starts to play at your own choice?

► Black box

► Lock box

► Juke box

► Pandora box

A jukebox is a partially automated music-playing device, usually a coin-operated machine that will play a patron's selection from self-contained media. The classic jukebox has buttons with letters and numbers on them that, when entered in combination, are used to play a specific selection.

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Question No: 28 ( M a r k s: 1 ) http://vuzs.net

Whenever bread comes in your mind; you usually think of a limited number of brand names. It reflects which one of the following concepts?

►Mind Share

►Dominant mind share

►Market share

►Relative market share

When people think of examples of a type or category of product, they think of a limited list (referred to as an evoked set).

Question No: 29 ( M a r k s: 1 ) http://vuzs.net

Which one of the following functions is being performed by the wholesaler when they achieve savings for their customers through buying carload lots and segregate it into smaller units?

►Bulk breaking

►Selling and promoting

►Financing

►Transportation

Bulk Breaking: involves dividing larger quantities into smaller quantities.

Question No: 30 ( M a r k s: 1 ) http://vuzs.net

Which one of the following wholesalers is involved in carrying stock of Air Conditioner (AC), offering credit to its customers, providing quicker deliveries and assistance of installation to its customers?

►Full-Service Wholesaler

►Limited-Service Wholesaler

►Merchant Wholesaler

►Exclusive distributor

Full-Service Wholesaler - a wholesaler offering a complete range of services including buying, selling, storage, transporting, sorting, financing, providing market feedback and risk-taking; also called a Full-Function Wholesaler.

Question No: 31 ( M a r k s: 1 ) http://vuzs.net

Which of the following shopping involves walking through a shopping district or mall with the purpose of looking at the displays in each retail store?

►Window shopping

►Online shopping

►Actual shopping

►Virtual shopping

Question No: 32 ( M a r k s: 1 ) http://vuzs.net

Which one of the following is NOT included in a model “AIUAPR” of buyer decision making model?

►Understanding

►Procurement

►Repeat purchase

►Understanding

( Awareness, Interest, Understanding, Attitudes, Purchase, Repeat purchase).

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Question No: 33 ( M a r k s: 1 ) http://vuzs.net

In which of the following, decisions are unduly influenced by initial information that shapes our view of subsequent information?

►Anchoring

►Group decision

►Conservatism and inertia

►Faulty generalizations

Anchoring - Decisions are unduly influenced by initial information that shapes our view of subsequent information.

Question No: 34 ( M a r k s: 1 ) http://vuzs.net

The need for the security of employment and security of revenues reflects which of the following needs.

►Physiological needs

►Self-actualization

►Love/belonging needs

►Safety needs

Safety Needs

When the physiological needs are met, the need for safety will emerge. Safety and security rank above all other desires. These include:

• Security of employment

• Security of revenues and resources.

Question No: 35 ( M a r k s: 1 ) http://vuzs.net

Which of the following is NOT a safety need?

►Security of revenues and resources

►Moral and physiological security

►The need to regulate body temperature

►Security of employment

Question No: 36 ( M a r k s: 1 ) http://vuzs.net

In which of the following researches, researcher creates a quasi-artificial environment to control spurious factors and then manipulates at least one of the variables?

►Qualitative marketing research

►Quantitative marketing research

►Experimental techniques

►Observational techniques

Experimental Techniques - the researcher creates a quasi-artificial environment to try to control spurious factors, and then manipulates at least one of the variables - examples include purchase laboratories and test markets.

Question No: 37 ( M a r k s: 1 ) http://vuzs.net

Which of the following is the part of implementation section of marketing plan?

►Critical path analysis

►Physical distribution

►Competitor indexing

►Brand equity

Question No: 38 ( M a r k s: 1 ) http://vuzs.net

In which of the following strategies the firm shows no proactive or little proactive approach?

► Prospector strategy

► Analyzer strategy

► Innovator strategy

► Reactor strategy

Reactor: A reactor has no proactive strategy.

www.vuzs.net

Question No: 39 ( M a r k s: 1 ) http://vuzs.net

Which of the following is a basic characteristic of a shopping good?

► Store image is unimportant if price is low

► Brand is most important variable

► Product is exclusive

► Product location needs to be convenient

Question No: 40 ( M a r k s: 1 ) http://vuzs.net

Which of the following is a brand created and owned by a large retailer of a product after purchasing in bulk quantity from manufacturer?

► Co-brand

► Private brand

► Manufacturer's brand

► Licensed brand

When large Retailers buy products in bulk from manufacturers and put their own brand name on them, this is called Private Branding, store brand, or private label.

Question No: 41 ( M a r k s: 1 ) http://vuzs.net

Which of the following is the pricing objective mentioned most frequently by four out of every five firms?

► Meeting competitors’ prices

► Target return on sales

► Sales maximization

► Revenue maximization

Question No: 42 ( M a r k s: 1 ) http://vuzs.net

Reductions in price offered to consumers, industrial users, or channel members for prompt payment of a bill are known as:

► Trade discounts

► Quality discounts

► Cash discount

► Off price discounts

Cash discounts for prompt payment.

Question No: 43 ( M a r k s: 1 ) http://vuzs.net

Costs that do not vary with production or sales level are referred as ________.

► Fixed costs

► Variable costs

► Total costs

► Unit costs

www.vuzs.net

Question No: 44 ( M a r k s: 1 ) http://vuzs.net

Promotion can be economically important because:

► It provides employment for thousands of people

► It increase sales volume

► It subsidizes the communication media

► All of the given options

Question No: 45 ( M a r k s: 1 ) http://vuzs.net

Advertising and sales promotion are the most commonly used elements of promotion in a:

► Distribution strategy

► Product strategy

► Pushing strategy

► Pulling strategy

Question No: 46 ( M a r k s: 1 ) http://vuzs.net

Which of the following refers to the consumer’s perception of a store and the shopping experience.

► Retail image

► Store classification

► Full service retailer

► Wheel of retailing

Question No: 47 ( M a r k s: 1 ) http://vuzs.net

The personal determinants of consumer behavior include which of the following?

► Culture

► Family

► Society

► Individual needs and wants

Culture, family, society is sociological determinants of consumer behavior.

www.vuzs.net

Question No: 48 ( M a r k s: 1 ) http://vuzs.net

Which of the following statements most closely relates to the consumer decision process?

► An important factor in problem recognition is changed financial status

► There are two major steps: internal search and external decision making.

► Attitude triggers the consumer decision process

► Routine purchases require both evaluation and search

Question No: 49 ( M a r k s: 3 )

Suppose you are going to buy an item which is offered for Rs.5000. Consider these situations.

There is 10% discount.

There is 10% surcharge

Calculate price you are going to pay for the item in each case.

Answer:

Price after discount:

As discount is 10% so the new price will be 90% of the actual price that is

5000 x 90 /100 =4500

Price after surcharge:

As surcharge is 10% so new price will be 110% of actual price that is

5000 x 110 /100 = 5500

Question No: 50 ( M a r k s: 3 )

Differentiate between sales price and transfer price.

Answer:

Transfer price means to set the location, to analyze, place and alteration of charges made between two parties or companies for any business. Transfer prices among mechanisms may be used to reflect distribution of resources among such components or for other purposes. Transfer prices are important for both taxpayers and tax managements because they determine in large part the income and expenses and taxable profits.

Sale price is that price at which something is obtainable for sale we can also say it the fair market value. According to the business dictionary sale price is also the reduce price of something during sale of something.

Question No: 51 ( M a r k s: 5 )

Considering a situation in which you are going to negotiate with a party, what are the necessary skills you think you should have for successful and effective negotiation? Explain what the benefits of an effective negotiation are?

Answer:

www.vuzs.net

Negotiation means two persons or two parties trying to solve some problem, Negotiations can occur in profit organization, non profit organization and Govt. offices.

There are many techniques used in negotiations like by skilled negotiator. The analysis of the negotiation or problem organization styleshould have the following points consideration:

Presenting demands

Ability to speak first

Calculation Deadlines

Take it or leave it

Rejecting an offer

Limited authority

Getting it in your hands

The effective negotiating resulting in a best solution and by negotiation we solved very big problems in any organization.

Question No: 52 ( M a r k s: 5 )

What are the important questions a marketer should consider while selecting a distribution channel for any market segment?

Answer:

Before selecting a distribution channel for any market segment following questions must be answered in order to have an effective distribution channel.

· Who is the operating authority of the channel?

· Should distribution be exclusive, selective or extensive?

· Should the product be sold through a retailer?

· Should the product be distributed through wholesale?

· Should multi-level marketing channels be used?

· How long should the channel be?

· Where should the product or service be available?

· When should the product or service be available?

· Should channel relationships be informal or contractual?

· Should electronic methods of distribution be used?

· Are there physical distribution and logistical issues to deal with?

Question No: 53 ( M a r k s: 5 )

When we are going to buy something from the market, it happens to our self that we buy things irrationally. How would you comment on this situation by keeping in view the model of Herbit Simon?

Answer:

Buyers normally engage in irrational buying behavior because perfectly rational buying cannot be achieved for the reason that there are number of factors that limit rational buying.

As Simon said if a complete analysis is to be done, a decision will be immensely complex.

Peoples' information processing ability is very limited.

The assumption of a perfectly rational economic actor is unrealistic.

Often we are influenced by emotional and non-rational considerations when we try to be rational we are at best only partially successful.

Moreover, perfectly rational decisions also pose a time constraint.

MKT501 Marketing Management Final 2010 Paper solved with ref

2012-02-17T06:10:00.001-08:00

Question No: 1 ( M a r k s: 1 ) http://vuzs.net

Critical path analysis is a part of which of the following?

►Implementation stage

►Marketing strategies

►Executive summary

►Financial summary

Page 16:Implementation

Personnel requirements, assigning responsibilities, give incentives, training on selling methods, financial requirements, management information systems requirements, month-by-month agenda, pert or critical path analysis,

Question No: 2 ( M a r k s: 1 ) http://vuzs.net

Which of the following is TRUE about a product?

►Every tangible thing the customer receives in an exchange

►The idea that the customer receives in an exchange

►The service that is rendered to a customer

► The physical object the customer receives in an exchange

(zh,vuzs,feb11)

Question No: 3 ( M a r k s: 1 ) http://vuzs.net

Which of the following is EXCLUDED from business analysis?

►Profit analysis

►Management analysis

►Cost analysis

►Sales forecast

www.vuzs.net

http://groups.google.com/group/vuzs

Question No: 4 ( M a r k s: 1 ) http://vuzs.net

Which of the following are the people who purchase new products almost as soon as the products reach the market?

►Innovators

►Late majority

►Early majority

►Late adopters

Page no 33 of handouts

An innovation refers to anything perceived by some one as new. It may have a long history of innovating product. But in true sense it’s an Innovation to the person, who sees it and it is he who spreads it through a social system.

Question No: 5 ( M a r k s: 1 ) http://vuzs.net

Which of the following is a name, term, sign, symbol, design, or a combination of these, that identifiestheproduct or service?

►Label

►Co-brand

►Brand

►Product

Question No: 6 ( M a r k s: 1 ) http://vuzs.net

Which of following is an example of corporate brand?

►Rafhan foods

►Knorr

►National foods

►Mercedes

(vuzs,us,jan 2012)

Question No: 7 ( M a r k s: 1 ) - Please choose vuzs one

Which of the following price is quoted to a potential buyer, usually in written form?

►Wholesale price

►Market price

►List price

►Retail price

Question No: 8 ( M a r k s: 1 ) http://vuzs.net

Market price is also known as:

►Effective price

►List price

►Retail price

►Wholesaler price

Page 43 : The market price (also called effective price) is the amount actually paid.

Question No: 9 ( M a r k s: 1 ) http://vuzs.net

Which of the following is a relatively long commercial in the format of a TV program?

►TV commercial donut

►Infomercials

►Sponsorship

►Product placement

Infomercials are long-format television commercials, typically five minutes or longer. Infomercials are also known as paid programming

Question No: 10 ( M a r k s: 1 ) http://vuzs.net

Identify the type of commercial for “Save wild life”.

►Traditional commercial

►Political commercial

►Public service commercial

►Local station commercial

Question No: 11 ( M a r k s: 1 ) http://vuzs.net

Which of the following is most profitable and requires seller to have most information about the customers?

►Second degree discrimination

►Indirect segmentation

►Direct segmentation

►Complete price discrimination

Page 51: Complete price discrimination is most profitable, and requires the seller to have the most information about buyers. Indirect segmentation is least profitable, and requires the seller to have the least information about buyers

Question No: 12 ( M a r k s: 1 ) http://vuzs.net

In analyzing and building up a product portfolio a company can use:

►Boston Consulting Group matrix

►Contribution Margin analysis

►General Electric model

►All of the given options

Page 54: In building up a product portfolio a company can use various analytical techniques including

•B.C.G. Boston Consulting Group-ANALYSIS

•Contribution Margin Analysis

•GE General Electric. Multi Factorol Analysis

Question No: 13 ( M a r k s: 1 ) http://vuzs.net

Nido has advertised that get 5% extra milk for the same price. Identify the type of consumer sales promotion technique used by Nido.

►Cents-off deal

►Price deal

►Loyalty rewards program

►Price-pack deal

Page 60: •Price-pack deal

The packaging offers a consumer a certain percentage more of the product for the same price (for example, 25 percent extra).

Question No: 14 ( M a r k s: 1 ) http://vuzs.net

Which of the following is the type of distribution in which a company stocks the product in as many outlets as possible?

►Exclusive distribution

►Corporate distribution

►Intensive distribution

►Selective distribution

Page 88:Intensive distribution- Where the majority of resellers stock the `product' (with convenience products, for example, and particularly the brand leaders in consumer goods markets) price competition may be evident.

Question No: 15 ( M a r k s: 1 ) http://vuzs.net

Which of the following is the benefit of intensive distribution?

►It increases coverage only

►It increases sales only

►It increases coverage and price

►It increases coverage and sales

www.vuzs.net

http://groups.google.com/group/vuzs

Question No: 16 ( M a r k s: 1 ) http://vuzs.net

Outbound operations, including all fulfillment activities and transportation to customers are which type of supply chain management activities?

►Strategic level

►Tactical level

►Operational levelPage 91

►Functional level

Question No: 17 ( M a r k s: 1 ) http://vuzs.net

Direct selling is best for which of the following?

►Furniture

►Refrigerator

► Car

►Encyclopedia

Reference:

(zh,vuzs,feb11)

Question No: 18 ( M a r k s: 1 ) http://vuzs.net

Telemarketing is an example of which of the following:

►Electronic sales

►Industrial selling

►Indirect selling

►Direct selling

Page 72 :Indirect- human-mediated but with indirect contact • telemarketing or telesales

Question No: 19 ( M a r k s: 1 ) http://vuzs.net

The physical aspects of the product are stimuli that the consumer receives from his or her environment. These are classified as ________ aspects.

►Significative

►Symbolic

►Social

►Perceptual

Page 98:Significative- the 'real' (physical) aspects of the product or service (which the company make use of)

Question No: 20 ( M a r k s: 1 ) http://vuzs.net

Especially for which type of products the marketers should view packaging as a major strategic tool?

►Convenience products

►Consumer shopping products

►Industrial products

►Specialty products

Reference(us,vuzs, jan 2012)

Question No: 21 ( M a r k s: 1 ) http://vuzs.net

Which of the following concepts is defined as the “responsiveness of the quantity demanded of a good or service to a change in its price”?

►Price elasticity

►Break-even pricing

►Demand curve

►Target cost

Question No: 22 ( M a r k s: 1 ) http://vuzs.net

Which one of the following models is created by “Chris Fill”?

►Major Community Facilities Program

►Medical Center for Federal Prisoners

►Minimum Cost Flow Problem

►Marketing Communications Planning Framework

Page 57: The Marketing Communications Planning Framework (MCPF) is a model for the creation of an integrated marketing communications plan. Created by Chris Fill,

Question No: 23 ( M a r k s: 1 ) http://vuzs.net

Objectives are common in which of the following pair of group activities?

►Decision making-Influencing

►Influencing-Negotiation

►Decision making-Negotiation

►All of the given options

Decision making-Negotiation
The group decision and negotiation terms are used many times in the same context, essentially because group decision making involves discussion or negotiation to achieve a common decision. (us, vuzs,jan12)

Question No: 24 ( M a r k s: 1 ) http://vuzs.net

In which of the following countries, arcades (a street of several different shops) were invented?

►France

►Italy

►Germany

►England

Page 95: In the nineteenth century, in France, arcades were invented, which were a street of several different shops,

Question No: 25 ( M a r k s: 1 ) http://vuzs.net

Which of the following shopping involves walking through a shopping district or mall with the purpose of looking at the displays in each retail store?

►Window shopping

►Online shopping

►Actual shopping

►Virtual shopping

Question No: 26 ( M a r k s: 1 ) http://vuzs.net

Which of the following statement reflects one of the concepts “Significative” i.e. a stimuli received by consumer from his or her environment?

►The 'real' (physical) aspects of the product or service (which the company make use of)

►The ideas or images attached by the supplier (for example by advertising)

►The ideas or images attached to the product or service by 'society' (for example, by reference groups)

►The ideas or images attached by the manufacturer

Page 98: Significative- the 'real' (physical) aspects of the product or service (which the company make use of)

Question No: 27 ( M a r k s: 1 ) http://vuzs.net

By keeping in the mind the SWOT analysis, identify ‘strength” from the following given options:

►Changing customer tastes

►Closing of geographic markets

►Tax increases

►Customer loyalty/relationship

Question No: 28 ( M a r k s: 1 ) http://vuzs.net

Which of the following options reflects “Weakness” of any organization?

►Unreliable product service

►Leading brand

►Changing customer tastes

►Technological skills

Question No: 29 ( M a r k s: 1 ) http://vuzs.net

In which of the following researches, researcher creates a quasi-artificial environment to control spurious factors and then manipulates at least one of the variables?

►Qualitative marketing research

►Quantitative marketing research

►Experimental techniquespage 109

►Observational techniques

Question No: 30 ( M a r k s: 1 ) http://vuzs.net

If an NGO purchases furniture for its office, it is purchasing a(an):

►Consumer good

►Consumer service

►Industrial good

►Industrial service

Question No: 31 ( M a r k s: 1 ) http://vuzs.net

Typically high priced and frequently used branded are:

►Impulse goods

►Convenient goods

►Shopping goods

►Speciality good

Question No: 32 ( M a r k s: 1 ) http://vuzs.net

Pricing a product at 4.99 Rs rather than 5 Rs is an example of which of the following?

►Unit pricing

►Odd pricing

►Round down pricing

►One price policy

Page 40: In a study, the perceived value of all the numbers between 1 and 100 were studied, and 77 was shown to have the lowest perceived value relative to its actual value.

Question No: 33 ( M a r k s: 1 ) http://vuzs.net

Many business executives argue that a more accurate explanation of actual pricing behavior is that within a given profit constraints, firms strive for:

►Profit maximization

►Target return

►Sales maximization

►Market share

Question No: 34 ( M a r k s: 1 ) http://vuzs.net

which statement would qualify as a definition of a cash discount?

►A 3 percent discount for buying the truckload

►A discount for performing some promotional activities

►Receiving a rebate for cash payment

►A discount for prompt return of invoice with payment

Question No: 35 ( M a r k s: 1 ) http://vuzs.net

Management at XYZ Company is having difficulty in raising the introductory price on system components to cover its increased costs. To cover the increased costs the XYZ Company will use which of the following pricing policy in pricing these components?

►Odd-even

► Skimming

►Penetration

►Psychological

Referece

(zh,feb11)

Question No: 36 ( M a r k s: 1 ) http://vuzs.net

Costs that remain stable regardless of the level of production achieved are called:

►Fixed cost

►Variable cost

►Average total cost

►Marginal cost

Question No: 37 ( M a r k s: 1 ) http://vuzs.net

Which of the following offers cash to customers who purchases a specific product within a specified time period?

►Rebates

►Coupons

►Contests

►Free travel

Reference

(zubair,vuzs,feb11)

Question No: 38 ( M a r k s: 1 ) http://vuzs.net

The stage in which the sales person relates the feature of its product to the needs of customer is:

►Demonstration

►Prospecting

►Presentation

►Close

(zh,vuzs)

Question No: 39 ( M a r k s: 1 ) http://vuzs.net

The presentation which is given by the sales person should include:

►Discussing the product’s technical specification

►Mentioning the product weakness

►Criticizing the competitor’s product

►Pointing out the product’s strength and weaknesses

www.vuzs.net

http://groups.google.com/group/vuzs

Question vu zs No: 40 ( M a r k s: 1 ) http://vuzs.net

According to many sales management experts, the very essence of sales process is:

►Prospecting

►Presentation

► Approach

►Close of sale

(zubair,vuzs.feb11)

Question No: 41 ( M a r k s: 1 ) http://vuzs.net

One factor that would cause the marketing channel to be longer is:

► The geographical concentration of consumers

►Product having low technical complexities

►The manufacturer desire to control the channel

►Large orders

Geographical dispersed customers need a longer distribution channel.

(zubair,vuzs)

Question No: 42 ( M a r k s: 1 ) http://vuzs.net

Which of the following shows the type of distribution channel in whichmanufacturer designated only a few dealers in an area to carry its products?

►Selective distribution

►Intensive distribution

►Exclusive distribution

►None of the given options

Page 88:Exclusive distribution- Only specially selected resellers (typically only one per geographical area) are allowed to sell the `product'.

Question No: 43 ( M a r k s: 1 ) http://vuzs.net

Which of the following are wholesaling intermediaries who may or may not take possession but who never take the title?

►Merchant wholesaler

►Agent

►Wholesalers

►None of the given options

Reference:

Question No: 44 ( M a r k s: 1 ) http://vuzs.net

Due to the decline in the growth of planned shopping centers in recent years, new strategies are being pursued such as:

►A combination of shopping mall, amusement park, and hotel

►A combination of shopping mall and car parking facility

►Complimentary theater tickets for shopping centre customers

►Live TV broadcast from the shopping centers

Question No: 45 ( M a r k s: 1 ) - Please choose vuzs one

According to Maslow's hierarchy of needs theory, which need will emerge when the physiological needs are met?

►Love

► Safety

►Status

►Being

When the physiological needs are met, the need for safety will emerge. Safety and security rank above all

other desires

When the physiological needs are met, the need for safety will emerge. Safety and security rank above all other desires.

Question No: 46 ( M a r k s: 1 ) http://vuzs.net

Which of the following statements concerning consumer behavior is true?

►It is a decision process and the act of purchasing

►It is impossible to predict due to variance in income level and culture

►It is a result of fixed activities performed by the consumers

►It is determined by the individual genetic characteristics

Question No: 47 ( M a r k s: 1 ) http://vuzs.net

Sales forecast plays a major role in:

►New product decisions

►Production technology

►Quality control

►Marketing research
(vuzs, us, jan12)

Question No: 48 ( M a r k s: 1 ) http://vuzs.net

Which of the following would be a topic for exploratory research?

►Accounting procedure and financial practices

►Publicity and public relations

►New product development

► Sales result and market coverage

(vuzs, us, jan12))

Question No: 49 ( M a r k s: 3 )

You are going to purchase a personal computer; which channel of distribution you will use to purchase your computer. Explain it with logical reasoning.

A. I will prefer to purchase to retailer, because it’s convenient rather than searching out the different companies for every part of PC. Its feel me easy to buy from one place. In some cases it’s not possible that to purchase single from manufacturer.

Question No: 50 ( M a r k s: 3 )

In SWOT analysis “S” and “W” are considered as Strength and Weakness. Define these two concepts by taking example of each.

·Strengths are traits of the organization that are supportive for the success of the objective, e.g. size of company comparatively to other, cash flow, acuity of companies’ product & many more.

·Weaknesses are characteristics of the organization that are injurious to the achievement of the objective, e.g. poor management, lack of employee talent etc

Question No: 51 ( M a r k s: 5 )

You as a technical consultant, on behalf of clients, have participated in negotiations. On which basis you will determine the success of negotiation and failure of negotiation at the end of negotiation session?

A. Every negotiation needs planning. At the end of session if I able to satisfy the clients queries or I convince him to buy the product, it’s seems successful negotiation. In failure sessions, clients’ stills have some confusion in mind regarding the product/service or subject.

Question No: 52 ( M a r k s: 5 )

A general model of the buyer decision process implies that customers pass through all stages in every purchase. Do you think that in more routine purchases, customers often skip some of the stages? Justify your answer with logical reasoning by taking an example of hamburger purchased by a student.

A. Yes, purchaser often skips some stages in process. As in example of hamburger purchased by student there is so may factor which enforce him for quick decision and skip some steps.

Some students are in hurry they don’t have proper knowledge about the restaurant and just buy it which is economical for them.

Some time student purchase the cheapest burger no matter how it taste or healthy or not.

Some time students are addict to certain brands, so they don’t look at other alternatives and just buy their favorite one. Etc.

Question No: 53 ( M a r k s: 5 )

There are different activities which are performed in the supply chain management process in order to get satisfaction level of the customers. In your view what type of tactical activities are performed in the supply chain management process?

. Following are some activities to be performed:

Source contracts and other purchasing decisions.

Production decisions, locations, scheduling, and planning process.

inventory decisions, including quantity, location, and quality of inventory.

Transportation strategy, including, routes, and contracting.

Benchmarking of all operations against competitors and implementation of best practices throughout the enterprise.

MKT501 Final 2010 Paper Solved by Mehreen Humayun Spring 2010

2012-02-17T06:08:00.001-08:00

Question No: 1 ( M a r k s: 1 ) http://vuzs.net

Which of the following are the products bought by individuals and organizations for further processing or for use in conducting a business?

► Specialty

► Industrial

► Shopping

► Consumer

Industrial Products: used in the production of other goods.

Question No: 2 ( M a r k s: 1 ) http://vuzs.net

Introducing a new product into the market is called:

► Commercialization

► Experimenting

► Beta testing

► Test marketing

Commercialization: Introducing a new product into the market.

Question No: 3 ( M a r k s: 1 ) http://vuzs.net

In which of the following, the marketer tries his best to include word of caution for using the product?

► Labeling

► Packaging

► Bundling

► Positioning

Question No: 4 ( M a r k s: 1 ) http://vuzs.net

Which of the following best describes 3/10 net 40 ROG?

► The buyer must pay within 10 days of receipt of goods but will receive 3% discount if paid in 10 days

► The buyer must pay within 3 days of receipt of goods but will receive 10% discount if paid in 40 days

► The buyer must pay within 10 days of receipt of goods but will receive 3% discount if paid in 40 days

► The buyer must pay within 40 days of receipt of goods but will receive 3% discount if paid in 10 days

2/15 net 40 ROG - this means the buyer must pay within 40 days of receipt of goods, but will receive a 2% discount if paid in 15 days.

www.vuzs.net

Question No: 5 ( M a r k s: 1 ) http://vuzs.net

Of the following, what refers to raising awareness about specific issues and to modify public attitudes?

► Public service announcement

► TV commercials

► Enrichment and education

► Public relations

Ref: The main concept is to modify public attitudes by raising awareness about specific issues.

Question No: 6 ( M a r k s: 1 ) http://vuzs.net

A company manufactures shoes. The company incurred costs i.e. Rs.500, 000 for rent of the factory, Rs.20000 for transportation cost, Rs. 100, 000 for electricity bill and Rs. 600, 000 for raw material consumed. The variable cost for the company is Rs:

► 720,000

► 700,000

► 600,000

► 500,000

Variable costs change with the level of output, increasing as more product is generated.

• Materials consumed during production=600,000

• Power=100,000

• Transport=20,000

www.vuzs.net

Question No: 7 ( M a r k s: 1 ) http://vuzs.net

In analyzing and building up a product portfolio a company can use:

► Boston Consulting Group matrix

► Contribution Margin analysis

► General Electric model

► All of the given options

In building up a product portfolio a company can use various analytical techniques including

•B.C.G. Boston Consulting Group-ANALYSIS

•Contribution Margin Analysis

•GE General Electric. Multi Factorol Analysis

Question No: 8 ( M a r k s: 1 ) http://vuzs.net

Which of the following is the basic role of promotion?

► Interpretation

► Communication

► Manipulation

► Information

Promotion involves disseminating information about a product, product line, brand, or company.

www.vuzs.net

Question No: 9 ( M a r k s: 1 ) http://vuzs.net

Which of the following is NOT method of promotion?

► Direct mail

► Public relations

► Retailing

► Advertising

Question No: 10 ( M a r k s: 1 ) http://vuzs.net

Which of the following offers a reason to buy the product?

► Coupons

► Sales promotion

► Price pack deal

► Advertising

Question No: 11 ( M a r k s: 1 ) http://vuzs.net

How marketing manager can develop strategies for each product using information from sales force management system?

► Using communication mix variables

► Using marketing mix variables

► Using product mix variables

► Using promotion mix variables

Developing marketing strategies for each of your products using the marketing mix variables of price, product, distribution, and promotion.

Question No: 12 ( M a r k s: 1 ) http://vuzs.net

In which of the following the sales force management systems are used?

► Selling and management

► Marketing and advertisement

► Management and marketing

► Management and advertisement

Sales Force Management Systems are information systems used in marketing and management that automate some sales and sales force management functions.

Question No: 13 ( M a r k s: 1 ) http://vuzs.net

Which of the following is a readymade business, transferred from one place to other?

► Whole selling

► Retailing

► Franchising

► Direct selling

www.vuzs.net

Question No: 14 ( M a r k s: 1 ) http://vuzs.net

A vertical marketing system (VMS), in which independent firms at different levels of production and distribution, join together through contracts to obtain more economies or sales impact than they could achieve alone. What does this statement refers to?

► Corporate VMS

► Conventional VMS

► Administered VMS

► Contractual VMS

A contractual VMS is a vertical marketing system in which independent firms at different levels of production and distribution join together through contracts to obtain more economies or sales impact than they could achieve alone.

Question No: 15 ( M a r k s: 1 ) http://vuzs.net

Which of the following is a type of vertical marketing system?

► Franchise

► Direct selling

► Mail order

► Retailing

VERTICAL MARKETING: This relatively recent development integrates the channel with the original supplier - producer, wholesalers and retailers working in one unified system.

Question No: 16 ( M a r k s: 1 ) http://vuzs.net

Which of the following is NOT included in logistics?

► Purchasing

► Transporting

► Storage

► Financing

Logistics is about the:

• Purchasing,

• Transport,

• Storage,

• Distribution,

• Warehousing of raw materials, semi-finished/work-in-process goods and finished goods.

www.vuzs.net

Question No: 17 ( M a r k s: 1 ) http://vuzs.net

In how many ways the consumer buying behavior can be analyzed?

► Five

► Four

► Three

► Two

In general there are three ways of analyzing consumer buying decisions.

They are:

• Economic models

• Psychological models

• Consumer behavior models

Question No: 18 ( M a r k s: 1 ) http://vuzs.net

Which of the following is NOT a psychological need?

► Need for affection

► Need for food

► Need for water

► Need for sleep

The physiological needs of the organism, those enabling homeostasis, take first precedence. These consist mainly of:

• The need to breathe

• The need to eat

• The need to dispose of bodily wastes

• The need for sleep

• The need to regulate body temperature

Question No: 19 ( M a r k s: 1 ) http://vuzs.net

Which of the following is an opportunity in an organization?

► Competitors developing new products

► The relaxation or abolition of international tariffs

► New machinery or equipment

► Lack of computing expertise

Question No: 20 ( M a r k s: 1 ) http://vuzs.net

In which of the following research technique data is not analyzed statistically?

► Qualitative

► Quantitative

► Operational

► Functional

www.vuzs.net

Question No: 21 ( M a r k s: 1 ) http://vuzs.net

What does RFP stand for?

► Request for proposal

► Response for price

► Response for product

► Request for promotion

Request for Proposal (RFP).

Question No: 22 ( M a r k s: 1 ) http://vuzs.net

The Cargo business covers which of the following decisions under the marketing mix strategy?

► Product

► Price

► Placement

► Promotional

Question No: 23 ( M a r k s: 1 ) http://vuzs.net

In which section of the marketing plan you would find the detailed information about the marketing environment, market trends, customers and competitors?

► Situation analysis

► Product/market background

► Marketing strategies

► Market analysis

Market Analysis: Indeed, market situation must be taken into account in all details and carefully studied. Market definition, Market size, Market Segmentation, Industry Structure and strategic groupings, Competition and market share, Competitors' Strengths and Weaknesses and Market Trends must be carefully studied and analyzed.

www.vuzs.net

Question No: 24 ( M a r k s: 1 ) http://vuzs.net

Which of the following strategies requires premium pricing?

► Target market strategy

► Market segmentation strategy

► Differentiation strategy

► Cost leadership strategy

Differentiation involves creating a product that is perceived as unique. However there are usually additional costs associated with the differentiating product features and this could require a premium pricing strategy.

Question No: 25 ( M a r k s: 1 ) http://vuzs.net

Which of the following is the total process of moving goods from a manufacturer to a customer in the most timely and cost-efficient manner possible?

► Financing

► Logistics

► Warehousing

► Storing

Ref: Logistics is the process of moving goods from a manufacturer to a customer in the most timely and cost-efficient manner possible.
Question No: 26 ( M a r k s: 1 ) http://vuzs.net

Which of the following is NOT included in the financial summary of a marketing plan?

► Pro-forma income statement

► Month-by-month agenda

► Breakeven analysis

► Assumptions

Financial Summary: Assumptions, pro-forma monthly income statement, contribution margin analysis, breakeven analysis. This information must be very formally done at this stage.

Question No: 27 ( M a r k s: 1 ) http://vuzs.net

Various studies have indicated that good sales people have various traits including which of the following?

► Soft-spoken

► Honest

► Persistency

► All of the above

Question No: 28 ( M a r k s: 1 ) http://vuzs.net

Which one of the following functions is being performed by wholesaler when they provide a sales force that helps manufacturers reach many small business customers at a relatively low cost.

► Selling and promoting

► Bulk breaking

► Financing

► Market information

www.vuzs.net

Question No: 29 ( M a r k s: 1 ) http://vuzs.net

Which of the following options reflects the advantage of window shopping?

► We get a familiarity of the new items

► We can compare the brand, price and color of the items

► We spend time in an enjoyable way

► All of the given options

Question No: 30 ( M a r k s: 1 ) http://vuzs.net

In recent years, _____ has been growing fast. This includes selling to final consumers through direct mail, catalogs, telephone and the Internet.

► Specialty store

► Shopping center

► Superstore

► Nonstore retailing

Non store retailing: The selling of goods and services electronically without setting up a physical shop.

Question No: 31 ( M a r k s: 1 ) http://vuzs.net

“The ideas or images attached by the supplier (for example by advertising)” reflect which of the following stimuli received by consumer from his or her environment?

► Social

► Significative

► Symbolic

► Public

Symbolic - the ideas or images attached by the supplier (for example by advertising).

Question No: 32 ( M a r k s: 1 ) http://vuzs.net

In which of the following researches, researcher creates a quasi-artificial environment to control spurious factors and then manipulates at least one of the variables?

► Qualitative marketing research

► Quantitative marketing research

► Experimental techniques

► Observational techniques

Experimental Techniques: - the researcher creates a quasi-artificial environment to try to control spurious factors, and then manipulates at least one of the variables.

Question No: 33 ( M a r k s: 1 ) http://vuzs.net

The focus of marketing management is:

► Analysis of market

► Coordination among market players

► Distribution of products

► beneficial exchange between customers and producers

Question No: 34 ( M a r k s: 1 ) http://vuzs.net

The classification of consumer goods into the categories of convenience, shopping, and specialty goods are based upon:

► The marketing manager’s decision

► The consumer’s input

► The industry’s perception

► Consumer buying habits

Question No: 35 ( M a r k s: 1 ) http://vuzs.net

Among the following, the items that would seldom be test marketed are:

► Instant coffees

► Microwave ovens

► Breakfast cereals

► Cosmetics

www.vuzs.net

Question No: 36 ( M a r k s: 1 ) http://vuzs.net

Creating a package design that features a gold crest with a heavy maroon accent is a way of assisting in marketing the product by which of the following?

► Making the product more convenient to use

► Producing a package that can be easily used

► Evoking the product image through package design

► Producing package that is cost effective

Question No: 37 ( M a r k s: 1 ) http://vuzs.net

Which of the following is quick in innovation?

► Capital goods

► Food items

► Industrial goods

► IT products

Question No: 38 ( M a r k s: 1 ) http://vuzs.net

In an industry with many competing brands, which of the following would be used for new products?

► Competitive pricing

► Penetration pricing

► Skimming pricing

► Cost plus pricing

Question No: 39 ( M a r k s: 1 ) http://vuzs.net

Costs that do not vary with production or sales level are referred as ________.

► Fixed costs

► Variable costs

► Total costs

► Unit costs

Question No: 40 ( M a r k s: 1 ) http://vuzs.net

Which is the most common method used to set the pricing structure?

► Having the sales representative set the prices

► Having the industry set the prices of firm

► Having the government set the prices for the firm

► Having a pricing committee to set the prices

Question No: 41 ( M a r k s: 1 ) http://vuzs.net

Manufacturers of shampoos often send out free samples of their products with the magazines. This illustrates the use of which of the following element of promotional mix?

► Personal selling

► Sales promotion

► Direct mail

► Advertising

Question No: 42 ( M a r k s: 1 ) http://vuzs.net

Which of the following offers cash to customers who purchases a specific product within a specified time period?

► Rebates

► Coupons

► Contests

► Free travel

Question No: 43 ( M a r k s: 1 ) http://vuzs.net

According to many sales management experts, the very essence of sales process is:

► Prospecting

► Presentation

► Approach

► Close of sale

Question No: 44 ( M a r k s: 1 ) http://vuzs.net

Negotiation is also called as:

► Dispute formation

► Dispute resolution

► Dispute communication

► Dispute propagation

Negotiation: It is usually regarded as a form of alternative dispute resolution.

Question No: 45 ( M a r k s: 1 ) http://vuzs.net

Business firms that operate between producers and consumers are called:

► Intermediaries

► Retailers

► Wholesalers

► All of the given options

Question No: 46 ( M a r k s: 1 ) http://vuzs.net

When individuals open saving account, buy life insurance, or join health clubs to improve their physical conditions, they are probably seeking to satisfy their:

► Esteem needs

► Safety needs

► Social needs

► Physiological needs

Safety and Security needs include:

§ Personal security

§ Financial security

§ Health and well-being

§ Safety net against accidents/illness and their adverse impacts

Question No: 47 ( M a r k s: 1 ) http://vuzs.net

Marketing research consists of generating information to:

► Identify and define marketing opportunities

► Evaluate marketing actions

► Monitor marketing performances

► All of the given options

Question No: 48 ( M a r k s: 1 ) http://vuzs.net

During an exploratory research, a researcher may:

► Conduct a sales analysis

► Discuss the problem with the sales personnel

► Conduct marketing cost analysis

► All of the given options

Question No: 49 ( M a r k s: 3 )

Can a person reach self-actualization without meeting the lower level of needs? Briefly explain it.

Question No: 50 ( M a r k s: 3 )

What are the different functions performed by the wholesalers?

www.vuzs.net

Question No: 51 ( M a r k s: 5 )

The main focus of small businesses lies in publicity than public relations, why so?

www.vuzs.net

Question No: 52 ( M a r k s: 5 )

Why studying consumer behavior is important for marketers?

Question No: 53 ( M a r k s: 5 )

While starting the process of negotiation what points will you keep in mind during the process of negotiation?

MKT501- Marketing Management FINAM EXAM Spring 2010Solved by vuZs Team

2012-02-17T05:32:00.002-08:00

=Question No: 1 ( M a r k s: 1 ) http://vuzs.net

Which of the following stage of product life cycle is most expensive?

► Introduction

► Growth

► Maturity

► Decline

ref

Market introduction stage: Cost high, Sales volume low, Losses

Question No: 2 ( M a r k s: 1 ) http://vuzs.net

In which of the following demand for the product reduces because of technological advances, shifts in consumer tastes and increased competition?

► Introduction stage

► Growth stage

► Maturity stag

► Decline stage

ref

Decline stage: Fourth and last stage of a product's life cycle, characterized by fast declining sales revenue and fewer customers. Generally caused by (1) obsolescence, (2) Changes in customer preferences, 3) Global competition

(4) New regulatory requirements, such as environmental protection laws.

Question No: 3 ( M a r k s: 1 ) http://vuzs.net

Which of the following is the degree to which new product matches the values and experiences of the individuals in the community?

► Innovation communicability

► Innovation divisibility

► Innovation compatibility

► Innovation complexity

Ref: Compatibility: The degree to which new product matches the values and experiences of the individuals in the society.

Question No: 4 ( M a r k s: 1 ) http://vuzs.net

Which of the following is the leak-proof packaging that provides additional protection for the primary container?

► Primary packaging

► Secondary packaging

► Transport packaging

► Decorative packaging

Ref: Secondary packaging: Leak-proof packaging that provides additional protection for the primary receptacle(s); it may include absorbent material.

Question No: 5 ( M a r k s: 1 ) http://vuzs.net

ABC Co., a major Swedish multinational, provides an example of the power of innovative packaging and customer thinking. ABC Co. is involved in which of the following types of packaging that enables milk, fruit juice, and other perishable liquid foods to be distributed without refrigeration?

► Boxes

► Blister packs

► Cartons

► Aseptic packages

Ref: There are a large number of products in aseptic packages. These include soy milks, rice drinks, juices, tomatoes, soups, tofu, sports drinks, liquid eggs, and concentrates, cocktail mixes, whipping cream, infant nutritional beverages, teas, sauces and gravies.

Question No: 6 ( M a r k s: 1 ) http://vuzs.net

Which of the following brands is created specifically to counter a competitive threat?

► Premium brand

► Economy brand

► Fighting brand

► Corporate brand

ref

A fighting brand is a brand created specifically to counter a competitive threat.

Question No: 7 ( M a r k s: 1 ) http://vuzs.net

Which of the following is a name, term, sign, symbol, design, or a combination of these, that identifies the product or service?

► Label

► Co-brand

► Brand

► Product

Ref: A brand is the identity of a specific product, service, or business. A brand can take many forms, including a name, sign, symbol, colour combination or slogan.

Question No: 8 ( M a r k s: 1 ) http://vuzs.net

When two or more well known brands are combined in an offer it is called:

► Private brand

► Multibrands

► Co-brand

► New brand

ref

When two or more brands work together to market their products, this is referred to as Co-branding.

Question No: 9 ( M a r k s: 1 ) http://vuzs.net

To attract customers into stores, the store advertises its milk at a price less than cost, hoping that customers will purchase other groceries as well. Milk is acting as which of the following?

► Premium item

► On- sale item

► Discounted item

► Loss leader

ref

LOSS LEADER: In marketing, a loss leader is an item that is sold below cost in an effort to stimulate other profitable sales.

Question No: 10 ( M a r k s: 1 ) http://vuzs.net

Which of the following way of advertising can be used to attract passing pedestrian?

► Sponsorships

► Commercials

► Billboards

► Catchy jingles

ref

Traditional Billboards: Roadside billboards frequently encourage passersby to visit local businesses.

Question No: 11 ( M a r k s: 1 ) http://vuzs.net

Which of the following is the basic role of promotion?

► Interpretation

► Communication

► Manipulation

► Information

Fuad,vuZs

ref

Promotion involves disseminating information about a product, product line, brand, or company.

Question No: 12 ( M a r k s: 1 ) http://vuzs.net www.vuzs.net

Which of the following is NOT generally recognized as an element of the promotion mix?

► Sales promotion

► Pricing

► Public relations

► Advertising

ref

Promotional mix such as advertising, sales promotion, public relations, and publicity.

Question vuzs No: 13 ( M a r k s: 1 ) http://vuzs.net

IMC stands for what?

► Internal marketing community

► Integrated managing company

► Internal marketing communication

► Integrated marketing communication

Question No: 14 ( M a r k s: 1 ) http://vuzs.net

Which of the following offers an incentive to buy a product?

► Direct mail

► Public relations

► Sales promotion

► Advertising

ref

Question No: 15 ( M a r k s: 1 ) http://vuzs.net

Which of the following is NOT a medium used for advertising?

► Publicity

► Print media

► Television

► Radio

Question No: 16 ( M a r k s: 1 ) http://vuzs.net

Lost-and-found advertising on papyrus was common in which of the following:

► Rom and India

► Greece and India

► Rom and China

► Greece and Rom

ref

Egyptians used papyrus to create sales messages and wall posters, while lost-and-found advertising on papyrus was common in Greece and Rome.

Question No: 17 ( M a r k s: 1 ) http://vuzs.net

Which of the following is NOT the form of complex sales?

► Real estate development

► Large fleet vehicle sales

► Mining equipment sales

► Commercial goods sales

ref

Forms of complex sales:

§ Commercial insurance sales

§ Real Estate development

§ Large fleet vehicle sales

§ Mining equipment sales (ie Caterpillar tractors and large tunnel boring machines)

§ Scientific Solution Sales (Data analysis and management)

Question No: 18 ( M a r k s: 1 ) http://vuzs.net

Which type of sales involves long sales cycles with multiple decision makers?

► Electronic sales

► Consultative sales

► Complex sales

► Direct sales

ref

Complex sales involve long sales cycles with multiple decision makers. Multiple stakeholders and stakeholder groups contribute to every complex sale.

Question No: 19 ( M a r k s: 1 ) http://vuzs.net

Which of the following is an advantage of sales force management system for marketing manager?

► Identifying the best customers

► Identifying segments within market

► Identifying target market

► All of the given options

Question No: 20 ( M a r k s: 1 ) http://vuzs.net

Identify the type of promotion in which companies use celebrities for promotion.

► Personal selling

► Sales promotion

► Publicity

► Public relation

ref

Publicity is the means of using an external entity (celebrities, people from the media, etc) to increase the awareness levels of the product, company, goods etc amongst the public and/or buying segment.

Question No: 21 ( M a r k s: 1 ) http://vuzs.net

What is the intention of vertical marketing for retailers and wholesalers?

► Increase cost

► Reduce channels

► Reduce control

► Increase control

Question No: 22 ( M a r k s: 1 ) http://vuzs.net

Which of the following is NOT a production decision?

► Delivery of goods

► Contracting

► Planning process

► Scheduling

ref

Production decisions, including contracting, locations, scheduling, and planning process definition.

Question No: 23 ( M a r k s: 1 ) http://vuzs.net

Which of the following is a performance measure of efficiency of organization’s logistics?

► Logistics engineering

► Market logistics

► Landed cost

► Market growth

ref

Logistic Engineering deals with the science of Logistics.

Question No: 24 ( M a r k s: 1 ) http://vuzs.net www.vuzs.net

Which of the following is NOT a method of retailing?

► Counter-service

► Cross-selling

► Self-service

► Online shop

ref

Even though most retailing is done through self-service, many shops offer counter-service items.

Question No: 25 ( M a r k s: 1 ) http://vuzs.net

Which of the following is NOT a psychological need?

► Need for affection

► Need for food

► Need for water

► Need for sleep

ref

The physiological needs of the organism, those enabling homeostasis, take first precedence. These consist mainly of:

• The need to breathe

• The need to eat

• The need to dispose of bodily wastes

• The need for sleep

• The need to regulate body temperature.

Question No: 26 ( M a r k s: 1 ) http://vuzs.net

Identify the projective technique in which a picture is shown and respondents are asked to make the story.

► Role playing

► Cartoon test

► Story completion

► Thematic apperception test

ref

Thematic apperception tests - respondents are shown a picture (or series of pictures) and asked to make up a story about the picture(s).

Question No: 27 ( M a r k s: 1 ) http://vuzs.net

A corporate VMS has the advantage of controlling the entire distribution chain under which of the following?

► A few intermediaries

► Mass distribution

► Single ownership

► A profit-maximizing strategic plan

Question No: 28 ( M a r k s: 1 ) http://vuzs.net

Global markets are engaged in all of the following decisions EXCEPT:

► What country to enter in?

► How to enter?

► How to adopt their product and services?

► What to sell to governmental organization?

ref

GLOBAL MARKETS: This is when we talk beyond frontiers; marketers are faced with tougher decisions for global markets. Export of product is in itself a major undertaking. Which country to enter? How to enter? How to Price? How to communicate?

Question No: 29 ( M a r k s: 1 ) http://vuzs.net

Which of the following involves the use and disposal of products as well as the study of how they are purchased?

► Consumer performance

► Consumer response

► Consumer behavior

► Consumer relationship

ref

Consumer behavior involves the use and disposal of products as well as the study of how they are purchased.

Question No: 30 ( M a r k s: 1 ) http://vuzs.net

Maslow's hierarchy has a list of human needs from the most pressing to the least pressing. These include all of the following EXCEPT:

► Self-actualization

► Need recognition

► Safety needs

► Social needs

Question No: 31 ( M a r k s: 1 ) http://vuzs.net

_______ are the sum of the _______ and _______ for any given level of production.

► Fixed costs; variable; total costs

► Fixed costs; total; variable costs

► Variable costs; fixed; total costs

► Total costs; fixed; variable costs

Question No: 32 ( M a r k s: 1 ) http://vuzs.net

Which of the following concepts is defined as the “responsiveness of the quantity demanded of a good or service to a change in its price”?

► Price elasticity

► Break-even pricing

► Demand curve

► Target cost

ref

Elasticity of Demand (PED) is a measure of the responsiveness of the quantity demanded of a good or service to a change in its price.

Question No: 33 ( M a r k s: 1 ) http://vuzs.net

What are the tasks of the sales representative?

► Informing customers; information gathering; persuasion

► Installation and demonstration of products; project management; maintaining relationships

► Prospecting clients; relationship management; monitoring the competition

► All of the above

Question No: 34 ( M a r k s: 1 ) http://vuzs.net

Any paid form of nonpersonal presentation and promotion of ideas, goods, or services by an identified sponsor is called _____.

► Sales promotion

► Direct marketing

► Advertising

► Personal selling

ref

Advertising is any paid form of non-personal presentation and promotion of ideas, goods and services through mass media such as newspapers, magazines, television or radio by an identified sponsor".

Question No: 35 ( M a r k s: 1 ) http://vuzs.net

Multi-component video news release (VNR’s) is one of the tools of:

► Advertising

► Sales promotion

► Direct marketing

► Publicity

ref

Basic TOOLS of the Publicist are:

• Press Release

• Telephone press conferences

• In-studio media tours

• Multi-component video news releases (VNR’s)

• Newswire stories.

Question No: 36 ( M a r k s: 1 ) http://vuzs.net

“Unwillingness to change thought patterns that we have used in the past in the face of new circumstances” is showing which of the following concepts?

► Conservatism and inertia

► Experiential limitations

► Selective perception

► Source Credibility bias

ref

Conservatism and inertia - Unwillingness to change thought patterns that we have used in the past in the face of new circumstances.

Question No: 37 ( M a r k s: 1 ) http://vuzs.net

Global Market is also called as:

► Consumer market

► Import market

► Export market

► Government market

Question No: 38 ( M a r k s: 1 ) http://vuzs.net

A good marketing strategy would be to promote the extensive use of market segmentation in the:

► Introduction

► Growth

► Maturity

► Decline

ref

Maturity Stage:"Marketers will also revise their marketing strategies .i.e. they will find new segments of the market for their product.

Question No: 39 ( M a r k s: 1 ) http://vuzs.net

Pricing a product at 4.99 Rs rather than 5 Rs is an example of which of the following?

► Unit pricing

► Odd pricing

► Round down pricing

► One price policy

ref

Prices are rounded down to the nearest multiple of 5 cents for sales ending in 1c, 2c.

Question No: 40 ( M a r k s: 1 ) http://vuzs.net

The opportunity to deduct 2 percent from the bill if payment is made within 10 days is a:

► Trade discounts

► Quality discounts

► Cash discount

► Off price discounts

Question No: 41 ( M a r k s: 1 ) http://vuzs.net

If the firm's average total cost is equal to the price of the product at profit maximization then at what mode of operation the firm would be?

► Economic profit

► Normal profit

► Loss minimizing

► Shut down

ref

A firm is said to be making a normal profit when its economic profit equals zero. This occurs where average total cost equals price at the profit-maximizing output.

Question No: 42 ( M a r k s: 1 ) http://vuzs.net

If the price of product is between average total cost and average variable cost at profit maximization then at what mode of operation the firm would be?

► Economic profit

► Normal profit

► Loss minimizing

► Shut down

ref

If the price is between average total cost and average variable cost at the profit-maximizing output, then the firm is said to be in a loss-minimizing condition.

Question No: 43 ( M a r k s: 1 ) http://vuzs.net

Industrial purchases usually refer to deal with:

► Retailers

► Wholesalers

► Agents

► Manufacturer

ref

WHOLESALING “includes all activities involved in selling goods and services to those who buy for resale or business use”.

Question No: 44 ( M a r k s: 1 ) http://vuzs.net

Intense distribution:

► Involves the selection of small number of retailers

► Is usually used in the distribution of Candies and chewing gum

► Requires very little use of whole sellers

► Bypass the intermediaries

ref

Intensive Distribution Takes place when suppliers sell through as many retailers as possible. This arrangement usually maximizes suppliers' sales; and it enables retailers to offer many brands and product versions.

Question vu zs No: 45 ( M a r k s: 1 ) http://vuzs.net

You are going to take a decision about a purchase and your decision is influenced by initial information you collected from a source. Identify the decision making style in this situation.

► Repetition bias

► Group decision

► Anchoring

► Selective perception

ref

Anchoring - Decisions are unduly influenced by initial information that shapes our view of subsequent information.

Question No: 46 ( M a r k s: 1 ) http://vuzs.net www.vuzs.net

Which of the following statements most closely relates to the consumer decision process?

► An important factor in problem recognition is changed financial status

► There are two major steps: internal search and external decision making.

► Attitude triggers the consumer decision process

► Routine purchases require both evaluation and search

Question No: 47 ( M a r k s: 1 ) http://vuzs.net

Marketing strategies that have been successful in one country often cannot be applied directly in international markets due to which of the following?

► Political differences

► Social differences

► Cultural differences

► Economic differences

ref

Cultural differences are particularly important for international markets. Marketing strategies that prove successful in one country cannot extend to other international markets because of cultural variations.

Question No: 48 ( M a r k s: 1 ) http://vuzs.net

The survey method of collecting data includes which of the following?

► Observations

► Personal interviews

► Reports

► Internal sales data

Question No: 49 ( M a r k s: 3 )

How the performance of a supply chain can be measured? Mention any three points.

www.vuzs.net

Question No: 50 ( M a r k s: 3 )

What is the purpose of marketing research?

Question No: 51 ( M a r k s: 5 )

A company is using sales force automation system and aims to increase customer’s satisfaction. How sales force automation system can be helpful in attaining customer’s satisfaction?

Question No: 52 ( M a r k s: 5 )

How public relations are helpful in creating goodwill for organizations?

Question No: 53 ( M a r k s: 5 )

Differentiate between economic and psychological models.

MKT501 Final Term 2011 Current paper subjective by Different students

2012-02-17T05:21:00.001-08:00

Shared by Mehreen

total 69 mcq

3 question , of 3 marks

4 questions of 5 marks.

all mcq's repeated.

1. Differentiate between Operationalization and Conceptualization

2. name selling techniques.

3. how can a company motivate channel members.

4. how automation systems can be used to see the performance of the sales force.

5.Differentiate between observational and experimental technique in marketing research.

6.Differentiate between public relation and publicity.

7. factors which can influence change in price of a product.

=============================================================

Shared by mehvish

My Today MKT501 paper

Total 62 MCQ

All MCQ are from the past papers and 10 mcqs from mid term repeated and other mcqs from the past papers

Only there are 20 new Mcqs from the 40 to 45 lec

but easy

3 question of 3 marks

4 question of 5 marks

1) What are the advantages of the Publicity? 3 marks

2)How you evaluate that Billboard placement can be possible? 3 marks

3)Define the Constracts process between the consumer behavior Model? 3 marks

4) What is Qualitative marketing research and also describe the approaches of the qualitative marking research ?5 marks

5) How you consider the Retail pricing and describe any two strategies which retailer used when he is setting the price policies?5 marks

6) Write the advantage of Advertising and how it is called a long lasting technique, Discuses? 5 marks

7) Pricing is very important But how its decision for the markerters is very difficult, Discuses with stable example? 5 marks

BEST OF LUCKS

REMEMBER ME IN UR PRAYERS

=============================================

IMRAN ALI & MUHAMMAD IBRAHIM
MARKETING GROUP
11-02-2011
MKT 501
FINAL TERM 2011

SUBJECTIVE

Question. By how many way information is trasmitted to a large numbers of customers through mass media?
Question. while marketing a conjoint analysis Mr. Ali come across that it is not working well in assessing the customer acceptance to the new product. He is of the view taht there is a fault while running the whole process of conjoint analysis being the student of management science .............? ye ni likha
Question. What are the activity included in the nonseeling time of sale person?
Question. How vertical marketing system differ from horizental marketing system.
Question. Describe the common advantage and disadvantage of observational research.
Question. Describe teh scope and requiremetn for conduction the quantitive marketing research.
Question. Enlist the inbound and outbound operation. Which are performed in the process of supply chain management.

MKT 501
FINAL TERM 2011

SUBJECTIVE
Question. Different business situation where we can find Negotiation.
Question. How retailer use technology for improving their performance.
Question.
Suppose you are going to buy an item which is offered for Rs.5000.
Consider
these situations? There is 10% discount, There is 10% surcharge
Calculate price you are going to pay for the item in each case?
Question
How vertical marketing system differ from horizental marketing sysetm
Question
Nokia is market leader and Sony Ericson ............ age ne ata
Question.
Sale refor to as a systematic of repethe and measurable milestones by which a saleperson retailes hes offer enabling the buyer how to achieve the goal/......?

Ye Friend ka he. Please solve file b upload kr dijeye ga. thanks

SOLVED….BY…..WAJID MALIK…

Subjective Questions MKT501…..FINAL TERM…
Question 01
What are the tactics of Supply Chain Management in their role? (5M) Page #92
Tactical Activities
• Sourcing contracts and other purchasing decisions.
• Production decisions, including contracting, locations, scheduling, and
planning process definition.
• Inventory decisions, including quantity, location, and quality of inventory.
• Transportation strategy, including frequency, routes, and contracting.
• Benchmarking of all operations against competitors and implementation of
best practices throughout the enterprise.
• Milestone Payments
Question 02
What are the difference in marketing or sales? 5 Marks Page # 2 & 73
Marketing is typically seen as the task of creating, promoting and delivering
goods and services from producers to consumers.
Sales refer to as a systematic process of repetitive and measurable milestones, by
which a salesperson relates his offering enabling the buyer to visualize how to
achieve his goal in an economic way”.
.
Selling is a practical implementation of MARKEING it often forms a separate
grouping in a corporate structure, employing separate specialist operatives
known as salesmen (singular: salesman or salesperson).
Question 03
What are the advantages and disadvantages of Observational Research?
(5 Marks)
The Observation method of research is basically developed for observing people
in their natural setting. It focuses more on their everyday normal life. There are
two types of Observation methods:
Non-Participant observation.
Participant Observation
Following are the advantages of this method

It helps in overcoming issues of validity, bias etc
It is useful when the subject can not provide information.
It is also useful when the subject is feared to provide inaccurate
information.
Following are the disadvantages:
Past events being studied
Frequently measuring attitudes or opinions
Selecting sample is tricky
Time and costs are high
Can be automated
Ethical issues
Question 04
What is the difference in the qualitative and quantitative research? Page 112
Qualitative research is a set of research techniques, used in marketing and the
social sciences, in which data are obtained from a relatively small group of
respondents and not analyzed with statistical techniques. While in the
quantitative research the data are obtained from a large group of respondents
that are statistically analyzed.
Question 05
What is the scope of quantitative research? Page114
Both descriptive and inferential statistical techniques can be used to analyze data
and draw conclusions. It involves a quantity of respondents sometimes ranging
in number from ten to ten million, and may include hypotheses, random
sampling techniques to enable inference from the sample to the population.
Marketing research may include both experimental and quasi-experimental
research designs.
Questions 06
What do you think that what you have negotiation skills? What are the benefits of negotiation?
Negotiation means two persons or two parties trying to solve some problem,
Negotiations can occur in profit organization, non profit organization and Govt.
offices.
There are many techniques used in negotiations like by skilled negotiator. The
analysis of the negotiation or problem organization style should have the
following points consideration:
Presenting demands
Ability to speak first
Calculation Deadlines
Take it or leave it
Rejecting an offer
Limited authority
Getting it in your hands
The effective negotiating resulting in a best solution and by negotiation we
solved very big problems in any organization.
Question 07
What are Inbound and outbound activities of retailers? Page # 92, 93
Inbound operations, including transportation from suppliers and receiving
inventory.
Outbound operations, including all fulfillment activities and transportation to
customers.
Question 08
Suppose you are going to buy an item which is offered for Rs.5000.
Consider these situations.
There is 10% discount.
There is 10% surcharge
Calculate price you are going to pay for the item in each case.
price after discount:
As discount is 10% so the new price will be 90% of the actual price that is
5000 x 90 /100 =4500
Price after surcharge:
As surcharge is 10% so new price will be 110% of actual price that is
5000 x 110 /100 = 5500
Question 09
Advantage of publicity. 3M Page 84
• Low cost
• And credibility (particularly if the publicity is aired in between news stories
like on evening TV news casts).
The disadvantages are lack of control over how releases will be used, and
frustration over the low percentage of releases that are taken up by the media.
Publicity draws on several key themes including
• Birth
• Love
• And death.
Question 10
What is length of channel, structure of different channels? 5M Page 88
CHANNEL STRUCTURE
To the various `levels' of distribution, which they refer to as the `channel length'.
• Conventional or free-flow - This is the usual, widely recognized, channel with
a range of `middlemen' passing the goods on to the end-user.
• Single transaction - A temporary `channel' may be set up for one transaction;
for example, the sale of property or a specific civil engineering project. This does
not share many characteristics with other channel transactions, each one being
unique.
• Vertical marketing system (VMS) - In this form, the elements of distribution
are integrated.
Question 11
How qualitative marketing research different from quantitative marketing
research. 5 Page 112

Qualitative research is a set of research techniques, used in marketing and the
social sciences, in which data are obtained from a relatively small group of
respondents and not analyzed with statistical techniques. While in the
quantitative research the data are obtained from a large group of respondents
that are statistically analyzed.
Question 12
What are the effective advertisements? 5
Question 13
Define the five character stick of interview marks 3 Page 111, 112
Interview is conducted one-on-one, and lasts between 30 and 60 Minutes.
[1] Best method for in-depth probing of personal opinions, beliefs, and
Values.
[1] Very rich depth of information
[1] Very flexible
[1] Can be time consuming and responses can be difficult to interpret
[1] Requires skilled interviewers - expensive - interviewer bias can easily be
introduced
[1] Start with general questions and rapport establishing questions, and then
proceed to more purposive questions
Question 14
Difference between publicity and public relation (marks 3)    Page 83, 84
PUBLICITY----DEFINITION
Publicity is the means of using an external entity (celebrities, people from the
media, etc) to increase the awareness levels of the product, company, goods etc
amongst the public and/or buying segment.
PUBLIC RELATIONS
“Public Relations is the art and science of building relationships between an
organization and its key publics. It is concerned with communications
management”.
Question 15
World wide web is mass media define (Marks 5)
Question 16
Retailer takes benefit of price discrimination describe? (Marks 5)
The retailer charges higher prices to some customers and lower prices to others.
For example, a customer may have to pay more if the seller determines that he or
she is willing to. The retailer may conclude this due to the customer's wealth,
carelessness, lack of knowledge, or eagerness to buy.
Question 17
Consumer behavior environment function (3 marks)   Page 99
The 'inputs' (stimuli) that the consumer receives from his or her environment are:
1. Significative - the 'real' (physical) aspects of the product or service (which the
company make use of)
2. Symbolic - the ideas or images attached by the supplier (for example by
advertising)
3. Social - the ideas or images attached to the product or service by 'society' (for
example, by reference groups)
The 'outputs' are what happens, the consumer's actions, as observable results of
the input stimuli.
Between the inputs and outputs are the 'constructs', the processes which the
consumer goes through to decide upon his or her actions. Howard and Sheth
group these into two areas:
1. Perceptual - those concerned with obtaining and handling information about
the product or service
2. Learning - the processes of learning that lead to the decision itself
Question 18
Vertical and horizontal define two situation are give. (5 marks)    Page 90
VERTICAL MARKETING
This relatively recent development integrates the channel with the original
supplier - producer, wholesalers and retailers working in one unified system.

called `corporate systems integration');
HORIZONTAL MARKETING
A rather less frequent example of new approaches to channels is where two or
more non-competing organizations agree on a joint venture - a joint marketing
operation - because it is beyond the capacity of each individual organization
alone. In general, this is less likely to revolve around marketing synergy.
Question 19
Bang a market manager why you want to TV ads after place the product give
your arguments (5 marks)
Question 20
Differentiate between sales price and transfer price.
Transfer price means to set the location, to analyze, place and alteration of
charges made between two parties or companies for any business.   Transfer
prices among mechanisms may be used to reflect distribution of resources
among such components or for other purposes. Transfer prices are important for
both taxpayers and tax managements because they determine in large part the
income and expenses and taxable profits.
Sale price is that price at which something is obtainable for sale we can also say it
the fair market value. According to the business dictionary sale price is also the
reduce price of something during sale of something.
Question 21
What are the important questions a marketer should consider while selecting a
distribution channel for any market segment?
Before selecting a distribution channel for any market segment following
questions must be answered in order to have an effective distribution channel.
• Who is the operating authority of the channel?
• Should distribution be exclusive, selective or extensive?
• Should the product be sold through a retailer?
• Should multi-level marketing channels be used?
• How long should the channel be?
• Where should the product or service be available?
• When should the product or service be available?
• Should channel relationships be informal or contractual?
• Should electronic methods of distribution be used?
• Are there physical distribution and logistical issues to deal with?
Question 22
When we are going to buy something from the market, it happens to our self
that we buy things irrationally. How would you comment on this situation by
keeping in view the model of Herbit Simon?
Buyers normally engage in irrational buying behavior because perfectly rational
buying cannot be achieved for the reason that there are number of factors that
limit rational buying.
As Simon said if a complete analysis is to be done, a decision will be immensely
complex.
Peoples' information processing ability is very limited.
The assumption of a perfectly rational economic actor is unrealistic.
Often we are influenced by emotional and non-rational considerations when we
try to be rational we are at best only partially successful.
Moreover, perfectly rational decisions also pose a time constraint.

Marketing Management MKT 501 Subjective Questions (Past Papers)

2012-02-17T05:14:00.000-08:00

Marketing Management MKT 501

Subjective Questions

(Past Papers)

1- You are going to purchase PC. Which channel of distribution you will use to purchase? (3 marks)
Answer:

After a product is manufactured by a supplier/factory, it is typically stored in a distribution company's warehouse. The product is then sold to retailers or customers. I will buy the PC from the retailer as well as I can also place an order via mail or telephone.

2- What are those constructs which link input and output actions in the customer decision making process according to Howard and Sheath? (3 marks)
Answer:

Between the inputs and outputs are the 'constructs', the processes which the consumer goes through to decide upon his or her actions. Howard and Sheth group these into two areas:

1. Perceptual - those concerned with obtaining and handling information about the product or service
2. Learning - the processes of learning that lead to the decision itself

3- The term Publicity and Public relation are interchangeable. Do you agree? (5 marks)
Answer:

Publicity is a tool of public relations. Whereas public relations are the management of all communication between the client and selected target audiences, publicity is the management of product- or brand-related communications between the firm and the general public. It is primarily an informative activity (as opposed to a persuasive one), but its ultimate goal is to promote the client's products, services, or brands.

4- Internal analysis is used to evaluate the strength and weaknesses of company's internal environment. What factors a company need to evaluate while doing internal analysis? (5 marks)
Answer:

STRENGTHS AND WEAKNESSES
• Resources: financial, intellectual, locational
• Customer Service
• Efficiency
• Competitive Advantages
• Infrastructure
• Quality
• Staff
• Management
• Price
• Distribution Channels and Hours of operations
• After sales service and Sales promotion techniques
• Transportation and Delivery time
• Diversified fields, Product line and multiple services/offers (Technical, Commercial, Designing &
Turnkey Projects etc )

Also prepare this.

OPPORTUNITIES AND THREATS
• Competitors' actions
• Economic conditions
• Interest rates
• Increasing market saturation
• Changes in laws and regulations

1. Define consumer behavior what is the main focus for marketers to study CB? 3
Answer:

It attempts to understand the buyer decision making process, both individually and in groups. It studies characteristics of individual consumers such as demographics, psychographics, and behavioral variables in an attempt to understand people's wants. It also tries to assess influences on the consumer from groups such as family, friends, reference groups, and society in general.

The main focus for the marketers to study of CB
1. How people buy?
2. What they buy?
3. When they buy?
4. And why they buy?

2. From where will you decide to buy your personal computer? 3
Answer:

3. How does retailer do and get benefit from price discrimination? 5
Answer:

Alternatively, there can be price discrimination for a variety of reasons. The retailer charges higher prices to some customers and lower prices to others. For example, a customer may have to pay more if the seller determines that he or she is willing to. The retailer may conclude this due to the customer's wealth, carelessness, lack of knowledge, or eagerness to buy.

Price discrimination can lead to a bargaining situation often called haggling — a negotiation about the price. Economists see this as determining how the transaction's total surplus will be divided into consumer and producer surplus. Neither party has a clear advantage, because the threat of no sale exists, whence the surplus vanishes for both.

4. What is the purpose of advertising? 5
“Advertising, generally speaking, is the promotion of goods, services, companies and ideas, usually performed by an identified sponsor”.
1. The purpose of adverts are to make people aware
2.to inform
3.to persuade
4.to remind
• To attract new buyers and try to expand customer base.
• To compete in the market.
• To create an organization's recognition among consumers.
• To promote subsidiary or products manufactured by the same company.
• To bring into notice the changes, special offers or current developments of the interest of the consumers.
• To increase the sale of a particular product.
• To carry out public relations and public service program.
Difference between qualitative and quantitative market research. 3 marks
Answer:

QUALITATIVE MARKETING RESEARCH

Qualitative research is a set of research techniques, used in marketing and the social sciences, in which data are obtained from a relatively small group of respondents and not analyzed with statistical techniques. This differentiates it from quantitative research in which a large group of respondents provide data that are statistically analyzed.

QUANTITATIVE MARKETING RESEARCH

Quantitative marketing research is the application of quantitative research techniques to the field of marketing. It has roots in both the positivist view of the world, and the modern marketing viewpoint that marketing is an interactive process in which both the buyer and seller reach a satisfying agreement on the "four P's" of marketing: Product, Price, Place (location) and Promotion.

Consumer's behaviour enviornment function 3 marks
Answer:

MODELS OF CONSUMER BEHAVIOR

One of the best known of the explanatory 'lain the interactions involved are that of Howard and Sheth. This contains a deal of common sense, although, as is often the case with such models, the rather obscure terminology makes it appear more confusing than it really is. The 'inputs' (stimuli) that the consumer receives from his or her environment are:

1. Significative - the 'real' (physical) aspects of the product or service (which the company make use of)
2. Symbolic - the ideas or images attached by the supplier (for example by advertising)
3. Social - the ideas or images attached to the product or service by 'society' (for example, by reference groups)

Vertical and horizontal marketing define two situation are give 5 marks

VERTICAL MARKETING
This relatively recent development integrates the channel with the original supplier - producer, wholesalers and retailers working in one unified system. This may arise because one member of the chain owns the other elements (often called `corporate systems integration'); a supplier owning its own retail outlets, this being 'forward' integration. It is perhaps more likely that a retailer will own its own suppliers, this being 'backward' integration. (For example, MFI, the furniture retailer, owns Hygena which makes its kitchen and bedroom units.) The integration can also be by franchise (such as that offered by McDonald's hamburgers and Benetton clothes) or simple co-operation (in the way that Marks & Spencer co-operates with its suppliers).

HORIZONTAL MARKETING
A rather less frequent example of new approaches to channels is where two or more non-competing organizations agree on a joint venture - a joint marketing operation - because it is beyond the capacity of each individual organization alone. In general, this is less likely to revolve around marketing synergy.

Being a market manager why you want to tv ads after place the product give your arrguments 5 marks
Answer:

Many Television Commercials feature Catchy Jingles (songs or melodies) or catch-phrases that generate sustained appeal, which may remain in the minds of television viewers long after the span of the advertising campaign.

For Catching Attention of consumers, communication agencies make wide use of humor. In fact, many psychological studies tried to demonstrate the effect of humor and indicate the way to empower advertising persuasion. Animation is often used in commercials. .
What are the tactics of Supply Chain Management in their role? 5 marks
Answer:

Tactical Activities
• Sourcing contracts and other purchasing decisions.
• Production decisions, including contracting, locations, scheduling, and planning process definition.
• Inventory decisions, including quantity, location, and quality of inventory.
• Transportation strategy, including frequency, routes, and contracting.
• Benchmarking of all operations against competitors and implementation of best practices throughout the enterprise.
• Milestone Payments

What are the differences in marketing or sales? 5 Marks
Many people mistakenly think that selling and marketing are the same - they aren't. You might already know that the marketing process is broad and includes all of the following:

Discovering what product, service or idea customers want.
Producing a product with the appropriate features and quality.
Pricing the product correctly.
Promoting the product; spreading the word about why customers should buy it.
Selling and delivering the product into the hands of the customer.

Selling is one activity of the entire marketing process.
Selling is the act of persuading or influencing a customer to buy (actually exchange something of value for) a product or service.
Marketing activities support sales efforts. Actually, they are usually the most significant force in stimulating sales. Oftentimes, marketing activities (like the production of marketing materials and catchy packaging) must occur before a sale can be made; they sometimes follow the sale as well, to pave the way for future sales and referrals.
Summary
1. Sales target on individuals or small groups. Marketing on the other hand targets a larger group o the general public.
2. Marketing means generating leads or prospects. sales means converting the leads or prospects into purchases and orders.
3. Marketing involves a longer process of building a name for a brand and pursuing the customer to buy it even if they do not need it. Where as sales only involve a short term of finding the target consumer.

What is the scope of quantitative research?
Answer

SCOPE AND REQUIREMENTS
Both descriptive and inferential statistical techniques can be used to analyze data and draw conclusions. It involves a quantity of respondents sometimes ranging in number from ten to ten million, and may include hypotheses, random sampling techniques to enable inference from the sample to the population. Marketing research may include both experimental and quasi-experimental research designs.

What do you think that what you have negotiation skills? What are the benefits of negotiation?
Answer

Speedy and informal resolution of disputes; generally less stressful
Confidentiality and the avoidance of publicity
May improve communication between parties thereby preserving or enhancing relationships between parties
High degree of party control:
Parties create own process and craft own agreement
Legal and/or other standards of fairness can be used in crafting agreements
Agreement binds parties
Process voluntary (except where mandated by contract or legislation)
Risk-free: communications are without prejudice and if no agreement reached, parties can pursue other options

What are Inbound and outbound activities of retailers?
Answer

Retailing consists of the sale of Goods/Merchandise for Personal or Household Consumption either from a fixed location such as a department store or kiosk.
In Commerce, a retailer buys goods or products in large quantities from manufacturers or importers, either directly or through a wholesaler, and then sells individual items or small quantities to the general public or end user customers, usually in a shop, also called store.
Retailers are at the end of the Supply Chain. Marketers see retailing as part of their overall Distribution Strategy.
Shops may be
• In Residential Streets,
• In Shopping Streets with little or no houses,
• Or in a Shopping Centre.
Shopping streets may or may not be for pedestrians only. Sometimes a shopping street has a partial or full roof to protect customers from precipitation.
Shopping is buying things, sometimes as a Recreational Activity. Cheap versions of the latter are window shopping (just looking, not buying) and browsing.

The four major activities carried out by retailers are:

Arrange for assortment of offerings
Breaking quantity
Holding stock
Extending services

World wide web is mass media define marks 5
Answer:

Toward the end of the 20th century, the advent of the World Wide Web marked the first era in which any individual could have a means of exposure on a scale comparable to that of mass media. For the first time, anyone with a web site can address a global audience, although serving to high levels of web traffic is still relatively expensive. It is possible that the rise of peer-to-peer technologies may have begun the process of making the cost of bandwidth manageable. Although a vast amount of information, imagery, and commentary (i.e. "content") has been made available, it is often difficult to determine the authenticity and reliability of information contained in (in many cases, self-published) web pages. The invention of the Internet has also allowed breaking news stories to reach around the globe within minutes. This rapid growth of instantaneous, decentralized communication is often deemed likely to change mass media and its relationship to society. "Cross-media" means the idea of distributing the same message through different media channels. A similar idea is expressed in the news industry as "convergence". Many authors understand cross-media publishing to be the ability to publish in both print and on the web without manual conversion effort. An increasing number of wireless devices with mutually incompatible data and screen formats make it even more difficult to achieve the objective “create once, publish many”.

Q:1 what is the purposes of marketing research?(3 marks)
Determine the profitability of the market

· Determine what customers want and need in the market

· Determine if there are already products available that are popular in the market

· Determine how the top rated websites in the market are selling the hot products that you find.

· Back engineer the selling strategies of the most profitable websites in the market

· Determine which websites dominate your market and why

· Determine how the most popular websites in the market make money

· Determine profit potential in the market

Q: 2 What is Transfer price and Sale Price? 3 Marks
Answer
Transfer Price

The price that is assumed to have been charged by one part of a company for products and services it provides to another part of the same company, in order to calculate each division's profit and loss separately.

Sale Prices

The price of a good or service that is being offered at a discount. The sale price can be calculated by subtracting the discount percent from 100, converting that number into a decimal, and multiplying the decimal by the normal price of the good. For example, a good that is normally priced at $100 and currently being offered at a 10% reduction would have a sale price of $90.

Q: 3 how many ways of transmitting a marketing message using Mass Media (5 marks)
Answer

•Wall paintings
•Billboards (outdoor advertising)
•Street furniture components,
•Printed flyers
•Radio
•Cinema
•Television ads
•Web banners,
•Web popup
•Skywriting
•Bus Stop benches
•Magazines
•Newspapers
•Town criers
•Sides of buses
•Taxicab
•Musical stage shows
•Subway
•Platforms and trains
•Elastic bands on disposable diapers
•Stickers on apples in supermarkets
•The opening section of streaming audio and video
• The backs of event tickets and supermarket receipts.
Any place an "identified" sponsor pays to deliver their message through a medium is advertising.

Q: 4 Channel Members are important for a company how a company can motivate their channel Members ( 5 Marks)

Answer

CHANNEL MOTIVATION
It is difficult enough to motivate direct employees to provide the necessary sales and service support.
Motivating the owners and employees of the independent organizations in a distribution chain requires even greater effort. There are many devices for achieving such motivation. Perhaps the most usual is `bribery': the supplier offers a better margin, to tempt the owners in the channel to push the product rather than its competitors; or a competition is offered to the distributors' sales personnel, so that they are tempted to push the product. At the other end of the spectrum is the almost symbiotic relationship that the all too rare supplier in the computer field develops with its agents; where the agent's personnel, support as well as sales, are trained to almost the same standard as the supplier's own staff.

Q: 5 what is the difference of Experimental technique and Observational Technique in Marketing Research (5 Marks)

MARKETING RESEARCH METHODS
Methodologically, marketing research uses four types of research designs, namely:
• Qualitative Marketing Research - generally used for exploratory purposes - small number of respondents - not generalizable to the whole population - statistical significance and confidence not calculated - examples include focus groups, in-depth interviews, and projective techniques.

• Quantitative Marketing Research - generally used to draw conclusions - tests a specific hypothesis - uses random sampling techniques so as to infer from the sample to the population - involves a large number of respondents - examples include surveys and questionnaires.

• Observational Techniques - the researcher observes social phenomena in their natural setting - observations can occur cross-section ally (observations made at one time) or longitudinally (observations occur over several time-periods) - examples include product-use analysis and computer cookie traces.

• Experimental Techniques - the researcher creates a quasi-artificial environment to try to control spurious factors, and then manipulates at least one of the variables - examples include purchase laboratories and test markets.
Researchers often use more than one research design. They may start with secondary research to get background information, and then conduct a focus group (qualitative research design) to explore the issues. Finally they might do a full nation-wide survey (quantitative research design) in order to devise specific recommendations for the client.
2. Advantage of publicity. 3
Answer

The advantages of publicity are
• Low cost
• And credibility (particularly if the publicity is aired in between news stories like on evening TV news casts).
The disadvantages are lack of control over how releases will be used, and frustration over the low percentage of releases that are taken up by the media.
Publicity draws on several key themes including
• Birth
• Love
• And death.
These are of particular interest because they are themes in human lives which feature heavily throughout life. In television serials several couples have emerged during crucial ratings and important publicity times, as a way to make constant headlines. Also known as a publicity stunt, the pairings may or may not be truthful.

3. What is length of channel, structure of different channels? 5
Answer:

CHANNEL STRUCTURE

To the various `levels' of distribution, which they refer to as the `channel length'.

• Conventional or free-flow - This is the usual, widely recognized, channel with a range of `middlemen' passing the goods on to the end-user.

• Single transaction - A temporary `channel' may be set up for one transaction; for example, the sale of property or a specific civil engineering project. This does not share many characteristics with other channel transactions, each one being unique.

• Vertical marketing system (VMS) - In this form, the elements of distribution are integrated.

5. What are the effective advertisements? 5
Answer

The TV commercial is generally considered the most effective mass-market advertising format and this is reflected by the high prices TV networks charge for commercial airtime during popular TV events.

TYPES OF TV COMMERCIALS
•Political TV advertising
•Infomercials
•Product placement
•Network or local station promotional advertising (also known as promo)
•Television commercial donut
•Sponsorship
1- Why do companies require integrated marketing communications? (Marks=3)
Answer

INTEGRATED MARKETING COMMUNICATIONS
Definition:
A management concept that is designed to make all aspects of marketing communication such as advertising, sales promotion, public relations, and direct marketing work together as a unified force, rather than permitting each to work in isolation.

A MODEL FOR INTEGRATED MARKETING
Integrated Marketing Communication is more than the coordination of a company's outgoing message between different media and the consistency of the message throughout. It is an aggressive marketing plan that captures and uses an extensive amount of customer information in setting and tracking marketing strategy.

4- List down at least five advantages of sales promotion. (Marks=5)
1. Price discrimination:
Producers can introduce price discrimination through the use of sales promotions. They can charge different prices to different consumers and trade segments depending on how sensitive each segment is to particular prices.Coupons, special sales events, clearance sales and discounts are examples to explain the phenomenon.
Often such price discrimination are offered in specific cities in the country,Bajaj Auto Ltd. started the scheme on 20th august 2001, where by if you buy a Bajaj Spirit two-wheeler you get Rs.3000/- off, valid only in Ahmedabad.
2. Effect on consumer behaviour:
As sales promotions are mostly announced for a short period, customers may feel a sense of urgency and stop comparing the alternatives. They are persuaded to act now rather than later.With every 500g pack of Tang, you get a free Tang glass. Offer valid only till stocks last.
3. Effect on trade behaviour:
4. Encourage Repeat Purchases
5. Providing Information
6. Increase the short term sale through discount

5- Electronic media and Print media can take many forms. Explain any five of the various forms of electronic and print media. (Marks=10)
FORMS

Electronic media and print media include:
•Broadcasting, in the narrow sense, for radio and television.
•Various types of discs or tape. In the 20th century, these were mainly used for music. Video and computer uses followed.
•Film, most often used for entertainment, but also for documentaries.
•Internet, which has many uses and presents both opportunities and challenges. Blogs and podcasts, such as news, music, pre-recorded speech and video)
•Publishing, in the narrow sense, meaning on paper, mainly via books, magazines, and newspapers.
•Computer games, which have developed into a mass form of media since devices such as the PlayStation 2
, Xbox, and the Gamecube broadened their use.

FINALTERM Sp 2010 MGT411- Money & Banking Solved By vuZs Team

2012-02-11T19:05:00.000-08:00

Time: 90 min

M a r k s: 69

Question No: 1 ( M a r k s: 1 ) http://vuzs.net

Mr. Ghazanfar has assets which when converted to cash, yield more currency then he needs to pay his debt. Which of the following statement best suites Mr. Ghazanfar?

► Mr. Ghazanfar earns good income

► Mr. Ghazanfar is a wealthy person

► All of the given options

► Mr. Ghazanfar has a lot of money at point in time

Question No: 2 ( M a r k s: 1 ) http://vuzs.net

Wealth can be held in number of other forms but we use to hold money because of which one of the following reason?

► It is the only mode of payment

► It is an asset

► It is most liquid

► It is the only store of value

Question No: 3 ( M a r k s: 1 ) http://vuzs.net

The financial intermediary that obtains funds largely through premium payments and uses those funds to purchase corporate bonds and mortgages is:

► Credit unions

► Mutual funds

► Life insurance companies

► Pension funds

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Question No: 4 ( M a r k s: 1 ) http://vuzs.net

Bonds that are issued by Government are called _________.

► Government bonds

► Treasury bonds

► Corporate bonds

► Callable bonds

Question No: 5 ( M a r k s: 1 ) http://vuzs.net

Which of the following investment will be profitable?

► IRR is less than cost of borrowing

► IRR is equal to cost of borrowing

► IRR is greater than cost of borrowing

► IRR has no connection with cost of borrowing

Question No: 6 ( M a r k s: 1 ) http://vuzs.net

What is true relationship between return and risk?

► Lower the risk greater the return

► Greater the risk greater the return

► Greater the risk no change in return

► No relationship between them

Question No: 7 ( M a r k s: 1 ) http://vuzs.net

A zero coupon bond:

► Does not pay any coupon payments because the issuer is in default

► Pays coupons only once a year versus the usual twice a year

► Promises a single future payment

► Pays coupons only if the bond price is below face value

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Question No: 8 ( M a r k s: 1 ) http://vuzs.net

An increase in the expected inflation shifts the bond supply to the _________

► Right

► Left

► No change

► None of the given options

Reference

Question No: 9 ( M a r k s: 1 ) http://vuzs.net

The____________ are an assessment of the creditworthiness of the corporate issuer.

► Bond yield

► Bond ratings

► Bond risk

► Bond price

Reference

Question No: 10 ( M a r k s: 1 ) http://vuzs.net

Mr. Ghazanfar wants to invest Rs.2,000 in a bond. If this bond is expected to receive a return of Rs.100 per month and a tax of Rs.3 will be deducted on this return. Then Mr. Ghazanfar made his decision by considering which of the following fact?

► He is attracted by Rs.100 return per month

► He considers Rs.100 less deduction for tax i.e.Rs.97

► He takes into consideration only the portion of tax which is deducted

► His decision will not be affected by any of the given factors

Question No: 11 ( M a r k s: 1 ) http://vuzs.net

Other things remaining equal, the liquidity premium theory is based upon the idea that ____________.

► Investors prefer long-term bonds

► Investors prefer short-term bonds

► Investors are indifferent between short-term and long-term bonds

► Investors prefer intermediate-term bonds

Reference

Question No: 12 ( M a r k s: 1 ) http://vuzs.net

What will the yield curve look like if future short-term interest rates are expected to rise sharply?

► It will steeply slope upward

► It will be horizontal

► It will slightly slope upward

► It will slope downward

Reference

Question No: 13 ( M a r k s: 1 ) http://vuzs.net

The theory of efficient market states that prices of financial instruments reflect:

► All available information

► Some of the information

► No information

► Imperfect information

Question No: 14 ( M a r k s: 1 ) http://vuzs.net

Which of the following is a role of a financial institution acting as a financial intermediary?

► Pooling the resources of small savers

► Formulating oversight regulations

► Sending out free calendars at the holidays

► Lobbying legislators

Reference

Question No: 15 ( M a r k s: 1 ) http://vuzs.net

Which of the following represents correct equation for balance sheet of the bank?

► Total banks assets = Total banking liability + Banks Capital

► Total banks assets + Banks Capital = Total banking liability

► Total banks assets + Banks Capital +Total banking liability = 0

► Banks Capital = Total banking liability + Total banks assets

Reference

Question No: 16 ( M a r k s: 1 ) http://vuzs.net

One of the unique problems that banks face is that:

► They hold illiquid assets to meet liquid liabilities

► They hold liquid assets to meet illiquid liabilities

► They hold liquid assets to meet liquid liabilities

► Both banks' assets and liabilities are illiquid.

Reference

Question No: 17 ( M a r k s: 1 ) http://vuzs.net

Which one of the following is a way for a bank to deal with credit risk?

► Add a mark-up to the cost of funds for a specific borrower based on the borrower's credit history

► Charge all borrowers from the same industry an average rate for that industry

► Avoid making loans to borrowers from a broad spectrum

► Limit the number of loans made in any year

Reference

Question No: 18 ( M a r k s: 1 ) http://vuzs.net

Which of the following is not a function of Investment banks?

► Research and advice for investors

► Immediate sale of assets

► Access to payment system

► Access to spectrum of assets allowed diversification

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Question No: 19 ( M a r k s: 1 ) http://vuzs.net

Which of the following is correct?

► Monetary base = Currency + Reserves

► Monetary base = Currency + Deposits

► Monetary base = Loans + Reserves

► Monetary base = Required reserves + Deposits

Reference

Question No: 20 ( M a r k s: 1 ) http://vuzs.net

The Fed could make the market federal funds rate equal the target rate by which of the following?

► Mandating that all loans be transacted at the target rate

► Entering the federal funds market as a borrower and a lender

► Setting the discount rate below the federal funds rate

► Raising the required reserve rate

Reference

Question No: 21 ( M a r k s: 1 ) http://vuzs.net

Aggregate demand is derived from each of the following EXCEPT:

► Consumption

► Government Purchases

► The nominal exchange rate

► Net exports

Question No: 22 ( M a r k s: 1 ) http://vuzs.net

Which one of the following is NOT true for gap analysis?

► It is the difference between the yield on interest sensitive assets and liabilities

► It is the difference in the maturity of assets and liabilities

► Banks manage credit risk by using gap analysis

► It is a formal study of what a business is doing currently and where it wants to go in the future

Question No: 23 ( M a r k s: 1 ) http://vuzs.net

Successful monetary policy relies on:

► Competent people in responsible positions

► The institutional environment

► Knowledgeable citizens who know how to react to the policy

► Competent people in responsible positions and knowledgeable citizens

Reference

Question No: 24 ( M a r k s: 1 ) http://vuzs.net

The idea that central banks should be independent of political pressure is an idea that:

► Is included in Federal Reserve Act in 1913

► Is relatively new

► Every central bank was founded upon

► Became quite popular in the early 1900's

Reference

Question No: 25 ( M a r k s: 1 ) http://vuzs.net

The operational components required for truly independent central banks include:

► Bank's policies cannot be reversed by anyone outside of the central bank

► The ability to have policies reversed

► The budget controlled by Goverment

► The chairperson of the bank answerable only to the president

Reference

Question No: 26 ( M a r k s: 1 ) http://vuzs.net

Monetary policy operations for central banks are run through changes in the liability category of:

► Reserves

► Government's Accounts

► Currency

► Gold

Reference

Question No: 27 ( M a r k s: 1 ) http://vuzs.net

Discount lending includes in the Federal's function of _____________.

► Open market operations

► Lender of last resort

► The government bank

► Open market operation and the government bank

Question No: 28 ( M a r k s: 1 ) http://vuzs.net

Interest rate charged by the central bank on loans to commercial banks is known as:

► Discount rate

► Inflation rate

► Internal rate of return

► All of the given options

Question No: 29 ( M a r k s: 1 ) http://vuzs.net

Required reserve-to-deposit ratio is a factor that affects the quantity of money. This factor is controlled by which of the following?

► Central bank

► Bank regulators

► Commercial banks

► Non bank public

Lesson No. 35

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Question No: 30 ( M a r k s: 1 ) http://vuzs.net

Monetary Base is a factor that affects the quantity of money. This factor is controlled by which of the following?

► Central bank

► Bank regulators

► Commercial banks

► Non bank public

Question No: 31 ( M a r k s: 1 ) http://vuzs.net

What kind of risk will involve when loans will not be repaid?

► Interest-rate risk

► Credit risk

► Trading risk

► Inflation risk

Question No: 32 ( M a r k s: 1 ) http://vuzs.net

Which of the following technique is necessary for making profit in a bank?

► Interest rate on liabilities must be lower

► Interest rate on deposits must be higher

► Interest rate on deposits must be higher than the interest rate on the liabilities

► Interest rate on deposits must be lower than the interest rate on the liabilities

Reference

Question No: 33 ( M a r k s: 1 ) http://vuzs.net

There are _________ type/s of life insurance.

► 1

► 2

► 3

► 4

Reference

Question No: 34 ( M a r k s: 1 ) http://vuzs.net

In ____________ the investment bank guarantees the price of a new issue and then sells it to investor at higher price.

► Underwriting

► Investment banks

► Insurance companies

► Mutual funds

Reference

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Question No: 35 ( M a r k s: 1 ) http://vuzs.net

Which of the following policy is used by the central banks to stabilize economic growth and inflation in a country?

► Trade policy

► Fiscal policy

► Monetary policy

► Demand management policy

Question No: 36 ( M a r k s: 1 ) http://vuzs.net

During the period of _______the central bank decreases the interest rate in order to boost the economic activities in the country.

► Boom

► Recovery

► Recession or boom

► Recession

Question No: 37 ( M a r k s: 1 ) http://vuzs.net

The simple deposit expansion multiplier was derived assuming no ________are held and that there is no change in currency holdings by the public.

► Excess reserves

► Required reserve

► Actual reserve

► None of the given options

Reference

Question No: 38 ( M a r k s: 1 ) http://vuzs.net

Among the liability side of the balance sheet of a central bank which of the following item represent the function of central bank as Banker’s bank?

► Currency

► Reserves

► Deposits of the Government

► Loan to commercial bank

Question No: 39 ( M a r k s: 1 ) http://vuzs.net

_________ the nominal interest rate, the less money individuals will hold for a given level of transactions, and higher the velocity of money.

► Lower

► Higher

► Stable

► Incomplete information

Reference

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Question No: 40 ( M a r k s: 1 ) http://vuzs.net

Portfolio demand for money goes up as the liquidity of alternatives __________

► Falls

► Rises

► Remain stable

► Cannot be determined

Reference

Question No: 41 ( M a r k s: 1 ) http://vuzs.net

Among the four components of the aggregate demand which of the following is/are the sensitive to the real interest rate?

► Consumption

► Investment

► Net exports

► All of the given options

Question No: 42 ( M a r k s: 1 ) http://vuzs.net

There must be some level of the __________at which aggregate demand equals potential output.

► Real interest rate

► Nominal interest rate

► Effective interest rate

► None of the given options

Reference

Question No: 43 ( M a r k s: 1 ) http://vuzs.net

The rate will change if one of the following components of aggregate demand that is not sensitive to the real interest rate goes up (or down) or if potential output changes.

► Consumption

► Investment

► Net exports

► Govt. spending

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Question No: 44 ( M a r k s: 1 ) http://vuzs.net

Policymakers set their short-run nominal interest rate targets in response to economic conditions in general and _____________in particular.

► Inflation

► Deposits

► Exports

► Imports

Reference

Question No: 45 ( M a r k s: 1 ) - Please choose vu zs one

Which of the following is shown by the aggregate demand curve?

► How sensitive current output is to given change in current inflation

► Current output is not sensitive to given change in current inflation

► Current output and current inflation both move in the same direction

► None of the given options

Question No: 46 ( M a r k s: 1 ) http://vuzs.net

Rising inflation makes foreign goods cheaper in relation to domestic goods, driving imports ___________ and net exports __________.

► Up, down

► Down, up

► Down, down

► Up, up

Reference

Question No: 47 ( M a r k s: 1 ) http://vuzs.net

Inflation tends to change slowly; when it is low one year it tends to be __________ the next year, and when it is high it tends to _________ next year. This is called inflation persistence.

► Low, high

► High, low

► Low, low

► High, high

Reference

Question No: 48 ( M a r k s: 1 ) http://vuzs.net

What are the assumptions of the real business cycle theory?

► Prices are flexible

► Wages are flexible

► Prices and wages are flexible

► Prices and wages are fixed

Reference

Question No: 49 ( M a r k s: 3 )

Write down the relationship of portfolio demand for money with the items given below:

· Wealth

· Return relative to alternatives

· Expected future interest rates

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Question No: 50 ( M a r k s: 3 )

"Monetary policy can be used to stabilize economy".Discuss.

Question No: 51 ( M a r k s: 5 )

Write down the main functions of modern central bank?

Question No: 52 ( M a r k s: 5 )

Give brief explanation of the following.

a)What is Target funds rate?

b) How it is controlled?

c)What will be the impact of target federal rate on economy?

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Question No: 53 ( M a r k s: 5 )

Discuss the impact of following on aggregate demand:

A. Increase in government purchases

B. Increase in net exports

402

2012-02-09T00:31:00.001-08:00

FINALTERM EXAMINATION

Fall 2009

MGT402- Cost & Management Accounting (Session - 4)

Solved by vuZs Team

Mehreen Humayun

www.vuzs.net

Time: 120 min

M a r k s: 84

Question No: 1 ( M a r k s: 1 ) http://vuzs.net

All of the following are the features of fixed costs EXCEPT:

► Although fixed within a relevant range of activity level but are relevant to a decision making when it is avoidable.

► Although fixed within a relevant range of activity level but are relevant to a decision making when it is incremental.

► Generally it is irrelevant

► It is relevant to decision making under any circumstances

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Question No: 2 ( M a r k s: 1 ) http://vuzs.net

The total cost of the beginning inventory was Rs. 60,000. During the month, 50,000 units were transferred out. The equivalent unit cost was computed to be Rs. 4.00 for materials and Rs. 7.40 for conversion costs under the weighted-average method.

With the help of given information, what was the total cost of the units completed and transferred out during the month.

► Rs. 480,000

► Rs. 570,000

► Rs. 540,000

► Rs. 510,000

4+7.40=11.4,

11.4*50,000=570,000

Question No: 3 ( M a r k s: 1 ) http://vuzs.net

Cost of incoming freight on merchandise to be sold to customers by a retail chain would be considered by that merchandiser to be:

► Prime costs

► Inventoriable costs

► Period costs

► None of the given options

The term inventoriable cost is used interchangeably with product cost because a product is stored as the cost of inventory until the goods are sold.

Examples of Inventoriable costs: Unit invoice price, port handling fees, import duties and freight cost etc.

Question No: 4 ( M a r k s: 1 ) http://vuzs.net

Which of the following is a cost that changes in proportion to changes in volume?

► Fixed cost

► Sunk cost

► Opportunity cost

► None of the given options

Question No: 5 ( M a r k s: 1 ) http://vuzs.net

The second name of explicit cost is?

► Opportunity cost

► Out of pocket cost

► Implicit cost

► None of the given options

Economic Cost: The value of the next best alternative of a business resource. The economic cost of an activity is equal to total explicit costs plus total implicit costs. It is also known as opportunity cost.

Question No: 6 ( M a r k s: 1 ) http://vuzs.net

The net profit or loss for a particular period of time is reported on which of the following?

► Statement of cash flows

► Statement of changes in owner's equity

► Income statement

► Balance sheet

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Question No: 7 ( M a r k s: 1 ) http://vuzs.net

Which of the following is deducted from purchases in order to get the value of Net purchases?

► Purchases returns

► Carriage inward

► Custom duty

► All of the given options

Question No: 8 ( M a r k s: 1 ) http://vuzs.net

When prices are rising over time, which of the following inventory costing methods will result in the lowest gross margin?

► FIFO

► LIFO

► Weighted Average

► Cannot be determined

Question No: 9 ( M a r k s: 1 ) http://vuzs.net

A store sells five cases of soda each day. Ordering costs are Rs. 8 per order, and soda costs Rs. 3 per case. Orders arrive four days from the time they are placed. Daily holding costs are equal to 5% of the cost of the soda. What is the EOQ for soda?

► 4 cases

► 8 cases

► 10 cases

► 23 cases

Question No: 10 ( M a r k s: 1 ) http://vuzs.net

If, Basic Salary Rs.10,000

Per Piece commission Rs. 5

Unit sold 700 pieces

Amount of commission received will be:

► Rs. 3,500

► Rs. 13,500

► Rs. 10,000

► Rs. 6,500

Commission received= 5×700=3,500

Question No: 11 ( M a r k s: 1 ) http://vuzs.net

Increased cost of production due to high labor turnover is a result of which of the following factor?

► Interruption of production

► Coordination between new and old employee to produce more

► Increased production due to newly motivated employees

► Decrease losses as new employees will be more concerned towards output

Question No: 12 ( M a r k s: 1 ) http://vuzs.net

The Process of cost apportionment is carried out so that:

► Cost may be controlled

► Cost unit gather overheads as they pass through cost centers

► Whole items of cost can be charged to cost centers

► Common costs are shared among cost centers

Question No: 13 ( M a r k s: 1 ) http://vuzs.net

Which of the following is TRUE regarding the use of blanket rate?

► The use of a single blanket rate makes the apportionment of overhead costs unnecessary

► The use of a single blanket rate makes the apportionment of overhead costs necessary

► The use of a single blanket rate makes the apportionment of overhead costs uniform

► None of the given options

The use of a single blanket rate makes the apportionment of overhead costs unnecessary since

the total production costs are to be used.

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Question No: 14 ( M a r k s: 1 ) http://vuzs.net

Nelson Company has following FOH detail.

Budgeted (Rs.) Actual (Rs.)

Production Fixed overheads 36,000 39,000

Production Variable overheads 9,000 12,000

Direct labor hours 18,000 20,000

What would be the applied rate.

► Rs.2.00 per labor hour

► Rs.2.50 per labor hour

► Rs.2.55 per labor hour

► Rs.0.50 per labor hour

36000/18000=2

Question No: 15 ( M a r k s: 1 ) http://vuzs.net

Which of the following is the best define a by-product?

► A by-product is a product arising from a process where the wastage rate is higher than a defined level

► A by-product is a product arising from a process where the sales value is insignificant by comparison with that of the main product or products

► A by-product is a product arising from a process where the wastage rate is unpredictable

► A by-product is a product arising from a process where the sales value is significant by comparison with that of the main product or products

Question No: 16 ( M a r k s: 1 ) http://vuzs.net

Which of the following method of accounting for joint product cost will produce the same gross profit rate for all products?

► Actual costing method

► Services received method

► Market value method

► Physical quantity method

Market value: The effect is to make each product appear to be equally profitable.

Question No: 17 ( M a r k s: 1 ) http://vuzs.net

Profit under absorption costing will be higher than under marginal costing if:

► Produced units > Units sold

► Produced units < Units sold

► Produced units =Units sold

► Profit cannot be determined with given statement

Produced units > Units sold

Question No: 18 ( M a r k s: 1 ) http://vuzs.net

Which of the following costs do NOT change when the activity base fluctuates?

► Variable costs

► Discretionary costs

► Fixed costs

► Mixed costs

Question No: 19 ( M a r k s: 1 ) http://vuzs.net

In CVP analysis, when the number of units sold changes, which one of the following will remain the same?

► Total contribution margin

► Total sales revenues

► Total variable costs

► Total fixed costs

Question No: 20 ( M a r k s: 1 ) http://vuzs.net

Terrell, Inc. sells a single product at a selling price of Rs. 40 per unit. Variable costs are Rs. 22 per unit and fixed costs are Rs. 82,800. Terrell's break- even point is:

► Rs. 184,000

► 3,764 units

► Rs. 150,540

► 2,070 units

Contribution to sales ratio (C/S ratio) = Contribution Margin in Rs = 18 = 0.45

Sales in Rs 40

Break even Sales in Rs. =Fixed cost = 82,800 = Rs. 184,000

C/S ratio 0.45

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Question No: 21 ( M a r k s: 1 ) http://vuzs.net

The following detail is related to Bloch Company:

Opening work-in-process	2,000 litres,100% completed to material, 40% as to conversion cost
Material put in process	24,000 liters
Closing work-in-process	3,000 litres,100% completed to material and 45% as to conversion cost

Required: The numbers of equivalent units as to material, using FIFO method would be:

► 24,000 units

► 26,000 units

► 28,000 units

► 20,000 units

Question No: 22 ( M a r k s: 1 ) http://vuzs.net

The following detail is related to Bloch Company:

Opening work-in process	2,000 litres,100% completed to material, 40% as to conversion cost
Material put in process	24,000 liters
Closing work-in-process	3,000 litres,100% completed to material and 45% as to conversion cost

Required: The numbers of equivalent units as to Conversion cost, using FIFO method would be:

► 26,000 units

► 25,550 units

► 24,200 units

► 24,350 units

Question No: 23 ( M a r k s: 1 ) http://vuzs.net

The by-product of flour is:

► Fats

► Bran

► Glycerin

► Meat Hides

Bran, a by-product of flour production, is mainly made up of the outer covering of the wheat grain.

Question No: 24 ( M a r k s: 1 ) http://vuzs.net

The point at which the cost line intersects the sales line will be called:

► Budgeted sales

► Break Even sales

► Margin of safety

► Contribution margin

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Question No: 25 ( M a r k s: 1 ) http://vuzs.net

All of the following are assumptions in constructing a Break even chart EXCEPT:

► There is no change of time value of money

► Price of cost factors remains constant

► Long term period will be considered

► Cost is affected by volume

In cost-volume-profit analysis, it is assumed that variable costs are perfectly and completely variable at all levels of activity and fixed cost remains constant throughout the range of volume being considered. However, such situations may not arise in practical situations.

Question No: 26 ( M a r k s: 1 ) http://vuzs.net

When using conventional cost-volume-profit analysis, some assumptions about costs and sales prices are made. Which one of the following is NOT one of those assumptions?

► The sales price will remain unchanged per unit

► The actual variable cost per unit must vary over the production range

► The costs can be expressed as straight lines in a break-even graph

► The variable cost will remain unchanged per unit

Variable costs and selling price (and hence contribution) per unit are assumed to be unaffected by a change in activity level.

Question No: 27 ( M a r k s: 1 ) http://vuzs.net

Which one of the following is NOT a tool of financial forecasting?

► Cash budget

► Capital budget

► Pro forma balance sheet

► Pro forma income statement

Question No: 28 ( M a r k s: 1 ) http://vuzs.net

Which of the following factor/s should be considered while constructing an administrative selling expense budget?

► Fixed expenses

► Past experience

► Variable expenses

► All of the given options

Question No: 29 ( M a r k s: 1 ) http://vuzs.net

The master budget usually begins with a:

► Production budget

► Direct materials budget

► Direct labor budget

► Sales budget

Question No: 30 ( M a r k s: 1 ) http://vuzs.net

Financial managers use which of the following to plan for monthly financing needs?

► Capital budget

► Cash budget

► Income Statement budget

► Selling & administrative expenses budget

Question No: 31 ( M a r k s: 1 ) http://vuzs.net

When using a flexible budget, a decrease in production levels within a relevant range:

► Decreases variable cost per unit

► Decreases total costs

► Increases total fixed costs

► Increases variable cost per unit

The variable costs change in direct proportion to output if flexible budgeting approach is adopted.

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Question No: 32 ( M a r k s: 1 ) http://vuzs.net

The decision to drop a product line should be based on:

► The fact that the product line shows a net loss over several periods

► The ability of the firm to eliminate some fixed costs as a result of dropping the product

► Whether the fixed costs that can be avoided by dropping the product line are less than the contribution margin that will be lost

► Whether the fixed costs that can be avoided by dropping the product line are greater than the contribution margin lost

Question No: 33 ( M a r k s: 1 ) http://vuzs.net

A cost that has been incurred but cannot be changed by present or future decisions is called:

► Sunk cost

► Differential cost

► Opportunity cost

► Marginal cost

Question No: 34 ( M a r k s: 1 ) http://vuzs.net

If sales is greater than cost, it means:

► Profit

► Loss

► Neither profit nor Loss

► Can not be determined

Question No: 35 ( M a r k s: 1 ) http://vuzs.net

If, Total fixed cost Rs. 2,000, Variable manufacturing cost Rs. 3,000, Variable selling cost Rs. 1,000 and Sales Rs. 10,000 then what will be the profit under absorption costing?

► Rs.7,000

► Rs.5,000

► Rs.4,000

► Rs.8,000

Question No: 36 ( M a r k s: 1 ) http://vuzs.net

Which of the following cannot becomes a part of product cost under absorption costing?

► Fixed manufacturing overhead

► Selling cost

► Direct materials

► Variable manufacturing overhead

Question No: 37 ( M a r k s: 1 ) http://vuzs.net

A company ABC has contribution to sales ratio of 35%, variable cost to sales ratio of 65% and a profit to sales ratio of 17%. What will be the margin of safety ratio?

► 48.6%

► 53.8%

► 26.2%

► It can not be calculated from the given data

Question No: 38 ( M a r k s: 1 ) http://vuzs.net

Which of the following is TRUE at Break even point?

► Profit is zero

► Fixed cost + variable cost = sales

► Fixed cost = contribution margin

► All of the given options

Question No: 39 ( M a r k s: 1 ) http://vuzs.net

Which one of the following factors would caused a budgeted revenue to be less than the expected demand?

► Excess capacity exists

► Abundant resources are available

► Demand exceeds capacity

► Excess supply of labor exists

If demand exceeds capacity, then a firm could probably not meet the demand that is in the marketplace.

Question No: 40 ( M a r k s: 1 ) http://vuzs.net

If:

Cost of goods available for sales Rs. 7,000

Cost of opening finished goods inventory is Rs. 1,000

Commercial expenses Rs. 2,000.

Which of the following is the cost of goods to be produced?

► Rs. 6,000

► Rs. 4,000

► Rs. 8,000

► Rs. 10,000

Question No: 41 ( M a r k s: 1 ) http://vuzs.net

If:

Cost of opening finished goods Rs. 2,000

Cost of goods to be produced Rs. 6,000

Operating expenses Rs. 1,000.

Which of the following is the cost of goods available for sale?

► Rs. 8,000

► Rs. 4,000

► Rs. 7,000

► Rs. 9,000

Question No: 42 ( M a r k s: 1 ) http://vuzs.net

All of the following are features of a relevant cost EXCEPT:

► They affect the future cost

► They cause an increment in cost

► Relevant cost is a sunk cost

► They affect the future cash flows

Question No: 43 ( M a r k s: 1 ) http://vuzs.net

Which of the following statement is TRUE about the relevant cost?

► It is a sunk cost

► It is an opportunity cost

► It do not affect the decision making process

► All costs are relevant

Question No: 44 ( M a r k s: 1 ) http://vuzs.net

A company produced a desired level of product ‘A’ in 5,500 Hours. The standard hours required to produce the same product are 5,000 Hours. What is the amount & nature of variance?

► 500 hours (Favorable)

► 500 hours (Unfavorable)

► 5,000 hours (Favorable)

► 5,000 hours (Unfavorable)

Question No: 45 ( M a r k s: 1 ) http://vuzs.net

Which of the following cost would be increases with an increase in activity level?

► Incremental cost

► Avoidable cost

► Sunk cost

► Opportunity cost

Question No: 46 ( M a r k s: 1 ) http://vuzs.net

An ice factory has a contribution margin of Rs. 450,000 and fixed cost for the year amounts to Rs. 495,000. The fixed cost of Rs. 215,000 can be eliminated if the operations are to be closed during winter season. An extra sale of Rs. 25,000 is also expected during winter season. What would be the decision?

► Operations would be closed during winter season

► Operations would be continued as we are having extra sales in winter season

► Operations would be partially closed

► None of the given options

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Question No: 47 ( M a r k s: 1 ) http://vuzs.net

A contract will be accepted in which of the following condition?

► If it reduces the contribution margin

► If it increases the contribution margin

► If it increases the fixed cost

► If it decreases sales revenue

Question No: 48 ( M a r k s: 1 ) http://vuzs.net

Which of the following statement is TRUE about opportunity cost?

► It is irrelevant to decision making

► It is always a sunk cost

► It is always a historical cost

► It is relevant to decision making

uestion No: 49 ( M a r k s: 3 )

Define contribution margin?

Question No: 50 ( M a r k s: 3 )

What is a principle budget factor?

Question No: 51 ( M a r k s: 5 )

Ali Company produces and sells Amrat Cola to retailers. The Cola is bottled in 2-litter plastic bottles. The estimated budgeted sales for the year 2009 would be Rs. 360,000 and the estimated Profit for the year 2009 would be Rs 10,000.

The Margin of safety Ratio is calculated as 20%.

Required: Breakeven Sales for the year 2009

Absolute amount of mos = 360,000 * 20% = 72,000

MOS = budgeted sales – break even sales

Break even sales = Budgeted sales – MOS

= 360,000 – 72,000 = 288,000

Question No: 52 ( M a r k s: 5 )

The management of Franco Corporation is concerned about department B, which showed a loss of Rs. 1,300 last quarter. You have been asked to prepare an analysis that will help management to decide whether to discontinue the department. Below is the Franco’s Income Statement for last quarter:

	Department A	Department B	Total
Sales (Rs)	260,000	130000	390,000
Variable Cost (Rs)	156,000	117000	273,000
Contribution margin	104,000	13,000	117,000
Less: Fixed Costs:
Separable (Rs)	11,300	5700	17,000
Joint (Rs)	17,400	8600	26,000
Total	28,700	14300	43,000
Profit (Loss) (Rs)	75,300	(1,300)	74,000

Showing all calculations, determine the effect of closing department B on Franco Corporation and make a recommendation.

Question No: 53 ( M a r k s: 10 )

Classify following organization with respect to cost accumulation procedure generally used either Job order costing or Process costing by filling the appropriate boxes given below.

Industries	Costing Procedure to be applied
Paint	Process Costing
Leather	Process Costing
Printing press	Job Order
Wood furniture	Job Order
Steel	Process Costing
Jewelry items	Job Order
Accounting firms	Job Order
Mobile phones	Job Order
Tires and tubes	Process Costing
Sugar	Process Costing

Question No: 54 ( M a r k s: 10 )

Ali and Co. has sales of Rs. 50,000 in March and Rs. 60,000 in April. Forecasted sales for May, June and July are Rs. 70,000, Rs. 80,000 and 100,000 respectively. The firm has a cash balance of Rs. 5,000 on May 01 and wishes to maintain a minimum cash balance of Rs. 5,000. Given the following data, prepare a cash budget for the month of May, June and July.

1. The firm makes 20% of sales for cash, 60% are collected in the next month and the remaining 20% are collected in the second month following the sale.

2. The firm receives other income of Rs. 2,000 per month.

3. The firm’s actual or expected purchases, all made for cash, are Rs. 50,000, Rs. 70,000 and Rs. 80,000 for the months of May through July, respectively.

4. Rent is Rs. 3,000 per month.

5. Wages and salaries are 10% of the previous month’s sales.

6. Cash dividends of Rs. 3,000 will be paid in June.

7. Payment of principal and interest of Rs. 4,000 is due in June.

8. A cash purchase of equipment costing Rs. 6,000 is scheduled in July.

9. Taxes of Rs. 6,000 are due in June.

Cash budget for the month of May

Opening balance of cash Rs. 5,000

Add: receipts 62000

Total amount of cash 67000

Less: payments (59000)

Closing balance of cash 8000

Receipts = cash sales+ Previous month sales + Previous last 2 months sales + receives other income

= 14000+ 36000 + 10000 + 2000 = 62000

Rs.70000 *20% = 14000

Previous month sales = 60000*60/100=36000

Previous last 2 months sales = 50000 * 20/100 = 10000

1. Payments = purchases + Rent + Wages and salaries 10% of the previous month’s sales

=50000 + 3,000 + 10% * 60000 = 59000

Cash budget for the month of June

Cash budget for the month of May

Opening balance of cash Rs. 5,000

Add: receipts 76000

Total amount of cash 81000

Less: payments (90000)

Closing balance of cash (9000)

Receipts = cash sales+ Previous month sales + Previous last 2 months sales + receives other income

= 14000 + 48000 + 12000 + 2000 = 76000

=70000*20/100 = 14000

Previous month sales =80000* 60/100 = 48000

Previous last 2 months sales = 60000*20/100=12000

2. Payments = purchases + Rent + Wages and salaries 10% of the previous month’s sales + Payment of principal and interest + Taxes

70000 + 3000 + 7000 + 4000 + 6000 = 90000

Cash budget for the month of July

Opening balance of cash Rs. 5,000

Add: receipts 92000

Total amount of cash 97000

Less: payments (97000)

Closing balance of cash 0

Receipts = cash sales+ Previous month sales + Previous last 2 months sales + receives other income

= 60000 + 14000 + 16000 +2000 = 92000

100000*60/100 = 60000

70000*20/100=14000

80000*20/100=16000

Payments = purchases + Rent + Wages and salaries 10% of the previous month’s sales + cash purchase of equipment

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= 80000 + 3000 + 8000 + 6000= 97000

402

2012-02-09T00:30:00.003-08:00

FINALTERM EXAMINATION

Fall 2009

MGT402- Cost & Management Accounting (Session - 4)

Solved by vuZs Team

Mehreen Humayun

www.vuzs.net

Time: 120 min

M a r k s: 84

Question No: 1 ( M a r k s: 1 ) http://vuzs.net

All of the following are the features of fixed costs EXCEPT:

► Although fixed within a relevant range of activity level but are relevant to a decision making when it is avoidable.

► Although fixed within a relevant range of activity level but are relevant to a decision making when it is incremental.

► Generally it is irrelevant

► It is relevant to decision making under any circumstances

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Question No: 2 ( M a r k s: 1 ) http://vuzs.net

With the help of given information, what was the total cost of the units completed and transferred out during the month.

► Rs. 480,000

► Rs. 570,000

► Rs. 540,000

► Rs. 510,000

4+7.40=11.4,

11.4*50,000=570,000

Question No: 3 ( M a r k s: 1 ) http://vuzs.net

Cost of incoming freight on merchandise to be sold to customers by a retail chain would be considered by that merchandiser to be:

► Prime costs

► Inventoriable costs

► Period costs

► None of the given options

The term inventoriable cost is used interchangeably with product cost because a product is stored as the cost of inventory until the goods are sold.

Examples of Inventoriable costs: Unit invoice price, port handling fees, import duties and freight cost etc.

Question No: 4 ( M a r k s: 1 ) http://vuzs.net

Which of the following is a cost that changes in proportion to changes in volume?

► Fixed cost

► Sunk cost

► Opportunity cost

► None of the given options

Question No: 5 ( M a r k s: 1 ) http://vuzs.net

The second name of explicit cost is?

► Opportunity cost

► Out of pocket cost

► Implicit cost

► None of the given options

Question No: 6 ( M a r k s: 1 ) http://vuzs.net

The net profit or loss for a particular period of time is reported on which of the following?

► Statement of cash flows

► Statement of changes in owner's equity

► Income statement

► Balance sheet

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Question No: 7 ( M a r k s: 1 ) http://vuzs.net

Which of the following is deducted from purchases in order to get the value of Net purchases?

► Purchases returns

► Carriage inward

► Custom duty

► All of the given options

Question No: 8 ( M a r k s: 1 ) http://vuzs.net

When prices are rising over time, which of the following inventory costing methods will result in the lowest gross margin?

► FIFO

► LIFO

► Weighted Average

► Cannot be determined

Question No: 9 ( M a r k s: 1 ) http://vuzs.net

► 4 cases

► 8 cases

► 10 cases

► 23 cases

Question No: 10 ( M a r k s: 1 ) http://vuzs.net

If, Basic Salary Rs.10,000

Per Piece commission Rs. 5

Unit sold 700 pieces

Amount of commission received will be:

► Rs. 3,500

► Rs. 13,500

► Rs. 10,000

► Rs. 6,500

Commission received= 5×700=3,500

Question No: 11 ( M a r k s: 1 ) http://vuzs.net

Increased cost of production due to high labor turnover is a result of which of the following factor?

► Interruption of production

► Coordination between new and old employee to produce more

► Increased production due to newly motivated employees

► Decrease losses as new employees will be more concerned towards output

Question No: 12 ( M a r k s: 1 ) http://vuzs.net

The Process of cost apportionment is carried out so that:

► Cost may be controlled

► Cost unit gather overheads as they pass through cost centers

► Whole items of cost can be charged to cost centers

► Common costs are shared among cost centers

Question No: 13 ( M a r k s: 1 ) http://vuzs.net

Which of the following is TRUE regarding the use of blanket rate?

► The use of a single blanket rate makes the apportionment of overhead costs unnecessary

► The use of a single blanket rate makes the apportionment of overhead costs necessary

► The use of a single blanket rate makes the apportionment of overhead costs uniform

► None of the given options

The use of a single blanket rate makes the apportionment of overhead costs unnecessary since

the total production costs are to be used.

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Question No: 14 ( M a r k s: 1 ) http://vuzs.net

Nelson Company has following FOH detail.

Budgeted (Rs.) Actual (Rs.)

Production Fixed overheads 36,000 39,000

Production Variable overheads 9,000 12,000

Direct labor hours 18,000 20,000

What would be the applied rate.

► Rs.2.00 per labor hour

► Rs.2.50 per labor hour

► Rs.2.55 per labor hour

► Rs.0.50 per labor hour

36000/18000=2

Question No: 15 ( M a r k s: 1 ) http://vuzs.net

Which of the following is the best define a by-product?

► A by-product is a product arising from a process where the wastage rate is higher than a defined level

► A by-product is a product arising from a process where the sales value is insignificant by comparison with that of the main product or products

► A by-product is a product arising from a process where the wastage rate is unpredictable

► A by-product is a product arising from a process where the sales value is significant by comparison with that of the main product or products

Question No: 16 ( M a r k s: 1 ) http://vuzs.net

Which of the following method of accounting for joint product cost will produce the same gross profit rate for all products?

► Actual costing method

► Services received method

► Market value method

► Physical quantity method

Market value: The effect is to make each product appear to be equally profitable.

Question No: 17 ( M a r k s: 1 ) http://vuzs.net

Profit under absorption costing will be higher than under marginal costing if:

► Produced units > Units sold

► Produced units < Units sold

► Produced units =Units sold

► Profit cannot be determined with given statement

Produced units > Units sold

Question No: 18 ( M a r k s: 1 ) http://vuzs.net

Which of the following costs do NOT change when the activity base fluctuates?

► Variable costs

► Discretionary costs

► Fixed costs

► Mixed costs

Question No: 19 ( M a r k s: 1 ) http://vuzs.net

In CVP analysis, when the number of units sold changes, which one of the following will remain the same?

► Total contribution margin

► Total sales revenues

► Total variable costs

► Total fixed costs

Question No: 20 ( M a r k s: 1 ) http://vuzs.net

Terrell, Inc. sells a single product at a selling price of Rs. 40 per unit. Variable costs are Rs. 22 per unit and fixed costs are Rs. 82,800. Terrell's break- even point is:

► Rs. 184,000

► 3,764 units

► Rs. 150,540

► 2,070 units

Contribution to sales ratio (C/S ratio) = Contribution Margin in Rs = 18 = 0.45

Sales in Rs 40

Break even Sales in Rs. =Fixed cost = 82,800 = Rs. 184,000

C/S ratio 0.45

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Question No: 21 ( M a r k s: 1 ) http://vuzs.net

The following detail is related to Bloch Company:

Opening work-in-process	2,000 litres,100% completed to material, 40% as to conversion cost
Material put in process	24,000 liters
Closing work-in-process	3,000 litres,100% completed to material and 45% as to conversion cost

Required: The numbers of equivalent units as to material, using FIFO method would be:

► 24,000 units

► 26,000 units

► 28,000 units

► 20,000 units

Question No: 22 ( M a r k s: 1 ) http://vuzs.net

The following detail is related to Bloch Company:

Opening work-in process	2,000 litres,100% completed to material, 40% as to conversion cost
Material put in process	24,000 liters
Closing work-in-process	3,000 litres,100% completed to material and 45% as to conversion cost

Required: The numbers of equivalent units as to Conversion cost, using FIFO method would be:

► 26,000 units

► 25,550 units

► 24,200 units

► 24,350 units

Question No: 23 ( M a r k s: 1 ) http://vuzs.net

The by-product of flour is:

► Fats

► Bran

► Glycerin

► Meat Hides

Bran, a by-product of flour production, is mainly made up of the outer covering of the wheat grain.

Question No: 24 ( M a r k s: 1 ) http://vuzs.net

The point at which the cost line intersects the sales line will be called:

► Budgeted sales

► Break Even sales

► Margin of safety

► Contribution margin

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Question No: 25 ( M a r k s: 1 ) http://vuzs.net

All of the following are assumptions in constructing a Break even chart EXCEPT:

► There is no change of time value of money

► Price of cost factors remains constant

► Long term period will be considered

► Cost is affected by volume

Question No: 26 ( M a r k s: 1 ) http://vuzs.net

When using conventional cost-volume-profit analysis, some assumptions about costs and sales prices are made. Which one of the following is NOT one of those assumptions?

► The sales price will remain unchanged per unit

► The actual variable cost per unit must vary over the production range

► The costs can be expressed as straight lines in a break-even graph

► The variable cost will remain unchanged per unit

Variable costs and selling price (and hence contribution) per unit are assumed to be unaffected by a change in activity level.

Question No: 27 ( M a r k s: 1 ) http://vuzs.net

Which one of the following is NOT a tool of financial forecasting?

► Cash budget

► Capital budget

► Pro forma balance sheet

► Pro forma income statement

Question No: 28 ( M a r k s: 1 ) http://vuzs.net

Which of the following factor/s should be considered while constructing an administrative selling expense budget?

► Fixed expenses

► Past experience

► Variable expenses

► All of the given options

Question No: 29 ( M a r k s: 1 ) http://vuzs.net

The master budget usually begins with a:

► Production budget

► Direct materials budget

► Direct labor budget

► Sales budget

Question No: 30 ( M a r k s: 1 ) http://vuzs.net

Financial managers use which of the following to plan for monthly financing needs?

► Capital budget

► Cash budget

► Income Statement budget

► Selling & administrative expenses budget

Question No: 31 ( M a r k s: 1 ) http://vuzs.net

When using a flexible budget, a decrease in production levels within a relevant range:

► Decreases variable cost per unit

► Decreases total costs

► Increases total fixed costs

► Increases variable cost per unit

The variable costs change in direct proportion to output if flexible budgeting approach is adopted.

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Question No: 32 ( M a r k s: 1 ) http://vuzs.net

The decision to drop a product line should be based on:

► The fact that the product line shows a net loss over several periods

► The ability of the firm to eliminate some fixed costs as a result of dropping the product

► Whether the fixed costs that can be avoided by dropping the product line are less than the contribution margin that will be lost

► Whether the fixed costs that can be avoided by dropping the product line are greater than the contribution margin lost

Question No: 33 ( M a r k s: 1 ) http://vuzs.net

A cost that has been incurred but cannot be changed by present or future decisions is called:

► Sunk cost

► Differential cost

► Opportunity cost

► Marginal cost

Question No: 34 ( M a r k s: 1 ) http://vuzs.net

If sales is greater than cost, it means:

► Profit

► Loss

► Neither profit nor Loss

► Can not be determined

Question No: 35 ( M a r k s: 1 ) http://vuzs.net

If, Total fixed cost Rs. 2,000, Variable manufacturing cost Rs. 3,000, Variable selling cost Rs. 1,000 and Sales Rs. 10,000 then what will be the profit under absorption costing?

► Rs.7,000

► Rs.5,000

► Rs.4,000

► Rs.8,000

Question No: 36 ( M a r k s: 1 ) http://vuzs.net

Which of the following cannot becomes a part of product cost under absorption costing?

► Fixed manufacturing overhead

► Selling cost

► Direct materials

► Variable manufacturing overhead

Question No: 37 ( M a r k s: 1 ) http://vuzs.net

A company ABC has contribution to sales ratio of 35%, variable cost to sales ratio of 65% and a profit to sales ratio of 17%. What will be the margin of safety ratio?

► 48.6%

► 53.8%

► 26.2%

► It can not be calculated from the given data

Question No: 38 ( M a r k s: 1 ) http://vuzs.net

Which of the following is TRUE at Break even point?

► Profit is zero

► Fixed cost + variable cost = sales

► Fixed cost = contribution margin

► All of the given options

Question No: 39 ( M a r k s: 1 ) http://vuzs.net

Which one of the following factors would caused a budgeted revenue to be less than the expected demand?

► Excess capacity exists

► Abundant resources are available

► Demand exceeds capacity

► Excess supply of labor exists

If demand exceeds capacity, then a firm could probably not meet the demand that is in the marketplace.

Question No: 40 ( M a r k s: 1 ) http://vuzs.net

If:

Cost of goods available for sales Rs. 7,000

Cost of opening finished goods inventory is Rs. 1,000

Commercial expenses Rs. 2,000.

Which of the following is the cost of goods to be produced?

► Rs. 6,000

► Rs. 4,000

► Rs. 8,000

► Rs. 10,000

Question No: 41 ( M a r k s: 1 ) http://vuzs.net

If:

Cost of opening finished goods Rs. 2,000

Cost of goods to be produced Rs. 6,000

Operating expenses Rs. 1,000.

Which of the following is the cost of goods available for sale?

► Rs. 8,000

► Rs. 4,000

► Rs. 7,000

► Rs. 9,000

Question No: 42 ( M a r k s: 1 ) http://vuzs.net

All of the following are features of a relevant cost EXCEPT:

► They affect the future cost

► They cause an increment in cost

► Relevant cost is a sunk cost

► They affect the future cash flows

Question No: 43 ( M a r k s: 1 ) http://vuzs.net

Which of the following statement is TRUE about the relevant cost?

► It is a sunk cost

► It is an opportunity cost

► It do not affect the decision making process

► All costs are relevant

Question No: 44 ( M a r k s: 1 ) http://vuzs.net

A company produced a desired level of product ‘A’ in 5,500 Hours. The standard hours required to produce the same product are 5,000 Hours. What is the amount & nature of variance?

► 500 hours (Favorable)

► 500 hours (Unfavorable)

► 5,000 hours (Favorable)

► 5,000 hours (Unfavorable)

Question No: 45 ( M a r k s: 1 ) http://vuzs.net

Which of the following cost would be increases with an increase in activity level?

► Incremental cost

► Avoidable cost

► Sunk cost

► Opportunity cost

Question No: 46 ( M a r k s: 1 ) http://vuzs.net

► Operations would be closed during winter season

► Operations would be continued as we are having extra sales in winter season

► Operations would be partially closed

► None of the given options

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Question No: 47 ( M a r k s: 1 ) http://vuzs.net

A contract will be accepted in which of the following condition?

► If it reduces the contribution margin

► If it increases the contribution margin

► If it increases the fixed cost

► If it decreases sales revenue

Question No: 48 ( M a r k s: 1 ) http://vuzs.net

Which of the following statement is TRUE about opportunity cost?

► It is irrelevant to decision making

► It is always a sunk cost

► It is always a historical cost

► It is relevant to decision making

uestion No: 49 ( M a r k s: 3 )

Define contribution margin?

Question No: 50 ( M a r k s: 3 )

What is a principle budget factor?

Question No: 51 ( M a r k s: 5 )

The Margin of safety Ratio is calculated as 20%.

Required: Breakeven Sales for the year 2009

Absolute amount of mos = 360,000 * 20% = 72,000

MOS = budgeted sales – break even sales

Break even sales = Budgeted sales – MOS

= 360,000 – 72,000 = 288,000

Question No: 52 ( M a r k s: 5 )

	Department A	Department B	Total
Sales (Rs)	260,000	130000	390,000
Variable Cost (Rs)	156,000	117000	273,000
Contribution margin	104,000	13,000	117,000
Less: Fixed Costs:
Separable (Rs)	11,300	5700	17,000
Joint (Rs)	17,400	8600	26,000
Total	28,700	14300	43,000
Profit (Loss) (Rs)	75,300	(1,300)	74,000

Showing all calculations, determine the effect of closing department B on Franco Corporation and make a recommendation.

Question No: 53 ( M a r k s: 10 )

Classify following organization with respect to cost accumulation procedure generally used either Job order costing or Process costing by filling the appropriate boxes given below.

Industries	Costing Procedure to be applied
Paint	Process Costing
Leather	Process Costing
Printing press	Job Order
Wood furniture	Job Order
Steel	Process Costing
Jewelry items	Job Order
Accounting firms	Job Order
Mobile phones	Job Order
Tires and tubes	Process Costing
Sugar	Process Costing

Question No: 54 ( M a r k s: 10 )

1. The firm makes 20% of sales for cash, 60% are collected in the next month and the remaining 20% are collected in the second month following the sale.

2. The firm receives other income of Rs. 2,000 per month.

3. The firm’s actual or expected purchases, all made for cash, are Rs. 50,000, Rs. 70,000 and Rs. 80,000 for the months of May through July, respectively.

4. Rent is Rs. 3,000 per month.

5. Wages and salaries are 10% of the previous month’s sales.

6. Cash dividends of Rs. 3,000 will be paid in June.

7. Payment of principal and interest of Rs. 4,000 is due in June.

8. A cash purchase of equipment costing Rs. 6,000 is scheduled in July.

9. Taxes of Rs. 6,000 are due in June.

Cash budget for the month of May

Opening balance of cash Rs. 5,000

Add: receipts 62000

Total amount of cash 67000

Less: payments (59000)

Closing balance of cash 8000

Receipts = cash sales+ Previous month sales + Previous last 2 months sales + receives other income

= 14000+ 36000 + 10000 + 2000 = 62000

Rs.70000 *20% = 14000

Previous month sales = 60000*60/100=36000

Previous last 2 months sales = 50000 * 20/100 = 10000

1. Payments = purchases + Rent + Wages and salaries 10% of the previous month’s sales

=50000 + 3,000 + 10% * 60000 = 59000

Cash budget for the month of June

Cash budget for the month of May

Opening balance of cash Rs. 5,000

Add: receipts 76000

Total amount of cash 81000

Less: payments (90000)

Closing balance of cash (9000)

Receipts = cash sales+ Previous month sales + Previous last 2 months sales + receives other income

= 14000 + 48000 + 12000 + 2000 = 76000

=70000*20/100 = 14000

Previous month sales =80000* 60/100 = 48000

Previous last 2 months sales = 60000*20/100=12000

2. Payments = purchases + Rent + Wages and salaries 10% of the previous month’s sales + Payment of principal and interest + Taxes

70000 + 3000 + 7000 + 4000 + 6000 = 90000

Cash budget for the month of July

Opening balance of cash Rs. 5,000

Add: receipts 92000

Total amount of cash 97000

Less: payments (97000)

Closing balance of cash 0

Receipts = cash sales+ Previous month sales + Previous last 2 months sales + receives other income

= 60000 + 14000 + 16000 +2000 = 92000

100000*60/100 = 60000

70000*20/100=14000

80000*20/100=16000

Payments = purchases + Rent + Wages and salaries 10% of the previous month’s sales + cash purchase of equipment

http://groups.google.com/group/vuZs

= 80000 + 3000 + 8000 + 6000= 97000

2012-02-09T00:24:00.000-08:00

Fall 2009 MGT201- Financial Management (Session - 3) Shared by Tahir Qazi Solved by vuZs Team Mehreen Humayun

2012-02-07T06:22:00.000-08:00

FINALTERM EXAMINATION

Fall 2009

MGT201- Financial Management (Session - 3)

Shared by Tahir Qazi

Solved by vuZs Team

Mehreen Humayun

www.vuzs.net

MGT201 Question No: 1 ( M a r k s: 1 )

ABC’s and XYZ’s debt-to-total assets ratio is 0.4. What is its debt-to-equity ratio?

► 0 .2

► 0 .77

► 0.667

► 0.333

Lesson 03

Debt to equity, explicitly shows the proportion to debt to equity. A ratio of 60 to 40 is used for new projects, i.e., for a project it is permitted to raise its finances 60 percent from the debt and 40 percent from equity. Debt to equity formula = Total Debt / Total Equity

MGT201 Question No: 2 ( M a r k s: 1 )

As interest rates go up, the present value of a stream of fixed cash flows _____.

► Goes down

► Goes up

► Stays the same

► Can not be found

MGT201 Question No: 3 ( M a r k s: 1 )

A 5-year ordinary annuity has a future value of Rs.1,000. If the interest rate is 8 percent, the amount of each annuity payment is closest to which of the following?

► Rs.231.91

► Rs.184.08

► Rs.181.62

► Rs.170.44

=(i)*(1-(1/(1+i)^n))/i

=(1.08)*(1-(1/(1.08)^5))/0.08=4.312127

PV=1000/4.312127=231.91

MGT201 Question No: 4 ( M a r k s: 1 )

Managers prefer IRR over net present value because they evaluate investments:

► In terms of dollars

► In terms of Percentages

► Intuitively

► Logically

Lesson 08

IRR is a widely used and an important measure, which is more common in practice than the NPV. IRR, unlike NPV that is expressed in dollar amounts, is always quoted in terms of percentage, which makes it comparable to the other market interest rates or the inflation rate.

MGT201 Question No: 5 ( M a r k s: 1 )

When there is single period capital rationing, what would be the most sensible way of making investment decisions?

► Choose all projects with a positive NPV

► Group projects together to allocate the funds available and select the group of projects with the highest NPV

► Choose the project with the highest NPV

► Calculate IRR and select the projects with the highest IRRs

When a company invests in projects with positive NPV, they raise the shareholders’ wealth or company’s value. This would also increase the market value added and the economic value added for the firm.

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MGT201 Question No: 6 ( M a r k s: 1 )

Which of the following is the value of bond that we expect the bond to be?

► Intrinsic value

► Fair value

► Both intrinsic and fair value

► Market price

Lesson 14

The fair or intrinsic value of the bond is the value that we expect the bond to be.

MGT201 Question No: 7 ( M a r k s: 1 )

An investment opportunity set formed with two securities that are perfectly negatively correlated. What will be standard deviation in the global minimum variance portfolio?

► Equal to zero

► Greater than zero

► Equal to the sum of the securities' standard deviations

► Equal to -1

Lesson 27

If there is no relation between the movements of the stocks then the correlation coefficient is zero.

MGT201 Question No: 8 ( M a r k s: 1 )

Which of the following value of the shares changes with investor’s perception about the company’s future and supply and demand situation?

► Par value

► Market value

► Intrinsic value

► Face value

Lesson 16

Another thing about the shares is to remember that par value is the value when they are issued the market value of the shares changes with investor’s perception about the company’s future and supply and demand situation.

MGT201 Question No: 9 ( M a r k s: 1 )

Which of the following statement about portfolio statistics is CORRECT?

► A portfolio's expected return is a simple weighted average of expected returns of the individual securities comprising the portfolio.

► A portfolio's standard deviation of return is a simple weighted average of individual security return standard deviations.

► The square root of a portfolio's standard deviation of return equals its variance.

► The square root of a portfolio's standard deviation of return equals its coefficient of variation.

Lesson 21

It is the weighted average of the expected returns of each individual investment in the portfolio.

MGT201 Question No: 10 ( M a r k s: 1 )

Which of the following is simply the weighted average of the possible returns, with the weights being the probabilities of occurrence?

► A probability distribution

► The expected return

► The standard deviation

► Coefficient of variation

Ref:

MGT201 Question No: 11 ( M a r k s: 1 )

The ratio of the standard deviation of a distribution to the mean of that distribution is referred to as __________.

► A probability distribution

► The expected return

► The standard deviation

► Coefficient of variation

http://en.wikipedia.org/wiki/Standard_deviation

The coefficient of variation is the ratio of the standard deviation to the mean.

MGT201 Question No: 12 ( M a r k s: 1 )

The Higher the Risk of a Share, the ___________ its Rate of Return and the _____ its Market Price.

► Higher; Lower

► Lower; Higher

► Higher; Higher

► Lower; Lower

Lesson 20

Consequences on Share Price: The Higher the Risk of a Share, the Higher its Rate of Return and the Lower its Market Price.

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MGT201 Question No: 13 ( M a r k s: 1 )

If a company intends to start a new project, ________ technique are employed to assess the financial viability of the project.

► Financial planning

► Financial forecasting

► Capital budgeting

► Capital rationing

Lesson 08

MGT201 Question No: 14 ( M a r k s: 1 )

The logic behind _________ is that instead of looking at net cash flows you look at cash inflows and outflows separately for each point in time.

► IRR

► MIRR

► PV

► NPV

Lesson 11

MGT201 Question No: 15 ( M a r k s: 1 )

Expected Portfolio Return = ___________

► rP * = xA rA + xB rB

► rP * = xA rA - xB rB

► rP * = xA rA / xB rB

► rP * = xA rA * xB rB

Lesson 21

MGT201 Question No: 16 ( M a r k s: 1 )

Market risk is measured in terms of the ___________ of the market portfolio or index.

► Variance

► Covariance

► Standard deviation

► Correlation coefficient

Lesson 23

MGT201 Question No: 17 ( M a r k s: 1 )

Which of the following represent all Risk –Return Combinations for the efficient portfolios in the capital market?

► Parachute graph

► CML straight line equation

► Security market line

► All of the given options

CML Straight Line Equation (T-Bill Portfolio and Optimal Portfolio Mix on Efficient Frontier Curve) connects rRF (Risk-free or T-Bill return) to the Tangent Point on the Efficient Frontier Curve. It represents all Risk-Return Combinations for Efficient Portfolios in the Capital Market.

MGT201 Question No: 18 ( M a r k s: 1 )

Generally companies want to keep the balance in the form of:

► Debt

► Equity

► Hybrid security

► Both debt and equity

Lesson 30

MGT201 Question No: 19 ( M a r k s: 1 )

A firm has a DFL of 3.5 at X dollars. What does this tell us about the firm?

► If sales rise by 3.5% at the firm, then EBIT will rise by 1%

► If EBIT rises by 3.5% at the firm, then EPS will rise by 1%

► If EBIT rises by 1% at the firm, then EPS will rise by 3.5%

► If sales rise by 1% at the firm, then EBIT will rise by 3.5%

(DFL) Degree of Financial Leverage=% Change in EPS/ % Change in EBIT

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MGT201 Question No: 20 ( M a r k s: 1 )

Which of the following is the maximum amount of debt (and other fixed-charge financing) that a firm can adequately service?

► Debt capacity

► Debt-service burden

► Adequacy capacity

► Fixed-charge burden

It is the assessment of the amount of debt an individual or firm can repay in a timely manner (from available means or resources) without jeopardizing its financial viability.

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MGT201 Question No: 21 ( M a r k s: 1 )

Which of the following represents financial leverage?

► Use of more debt capital to increase profit

► Debt is not used in capital to increase profit

► High degree of solvency

► Low degree of solvency

Lesson 31

MGT201 Question No: 22 ( M a r k s: 1 )

Which of the following statements regarding leverage is true?

► The ultimate effect of leverage depends on the firm's EBIT

► If things go poorly for the firm, increased leverage provides greater returns to shareholders.

► As a firm lever up, shareholders are exposed to less risk

► The benefits of leverage always outweigh the costs of financial distress

As firm levers up, shareholders are exposed to more and more risk. And the benefits of leverage will not be a great in a firm with substantial accumulated losses or other types of tax shields as for a firm without many tax shields.)

MGT201 Question No: 23 ( M a r k s: 1 )

Your firm has a philosophy that is analogous to the hedging (maturity matching) approach. Which of the following is the most appropriate form for financing a new capital investment in plant and equipment?

► 6-month bank notes

► Accounts payable

► Common stock equity

► Trade credit

MGT201 Question No: 24 ( M a r k s: 1 )

Which of the following term is used when the firm can independently control considerable assets with a very limited amount of equity?

► Joint venture

► Leveraged buyout (LBO)

► Spin-off

► Consolidation

Lesson 43

A leveraged buyout occurs when an investor, typically financial sponsor, acquires a controlling interest in a company's equity and where a significant percentage of the purchase price is financed through leverage (borrowing).

MGT201 Question No: 25 ( M a r k s: 1 )

Which of the following is NOT a form of short-term, spontaneous credit?

► Accrued wages

► Trade credit

► Commercial paper

► Accrued taxes

Lesson 41

Spontaneous Financing - Current Liabilities like Trade Credit and Accrued Taxes

(payable) and Wages payable form its base.

MGT201 Question No: 26 ( M a r k s: 1 )

Which of the following would NOT be included in inventory carrying cost?

► Insurance expense for the inventory

► Opportunity cost of capital for inventory investment

► Cost of inventory

► Cost of shelf space

Lesson 40

Inventory Carrying Costs is cost of capital, storage / warehouse rent, insurance premium, wastage.

MGT201 Question No: 27 ( M a r k s: 1 )

What would be the result when there is an increase in the number of shares outstanding by reducing the par value of stock?

► Stock split

► Stock dividend

► Extra dividend

► Regular dividend

Lesson 38

MGT201 Question No: 28 ( M a r k s: 1 )

What would you expect to happen to the price of a share of stock on the day it goes ex-dividend?

► The price should increase by the amount of the dividend

► The price should decrease by the amount of the dividend

► The price should decrease by one-half the amount of the dividend

► The price should remain constant

Lesson 38

MGT201 Question No: 29 ( M a r k s: 1 )

Which of the following add up to the costs of financial distress?

► Direct bankruptcy costs, primarily legal and administrative costs

► Indirect bankruptcy costs, reflecting the difficulty of managing a company when it is in bankruptcy proceedings

► Costs of the threat of bankruptcy, such as poor investment decisions resulting from conflicts of interest between debtholders and stockholders

► All of the given options are correct

A common example of a cost of financial distress is bankruptcy costs. These direct costs include auditors' fees, legal fees, management fees and other payments. Cost of financial distress can occur even if bankruptcy is avoided (indirect costs). The result is a conflict of interest between bondholders (creditors) and shareholders.

MGT201 Question No: 30 ( M a r k s: 1 )

A technique that tells us the number of years required to recover our initial cash investment based on the project’s expected cash flows is:

► Pay back period

► Internal rate of return

► Net present value

► Profitability index

Lesson 08

MGT201 Question No: 31 ( M a r k s: 1 )

Which is the best measure of risk for a single asset held in an isolation, and which is the best measure for an asset held in a diversified portfolio?

► Variance, correlation coefficient

► Standard deviation, correlation coefficient

► Beta, variance

► Coefficient of variation, beta

Correlation Coefficient measures the correlation in the returns of the two investments.

MGT201 Question No: 32 ( M a r k s: 1 )

All of the following are used in calculation of required return on a particular stock using SML equation EXCEPT:

► Risk free rate

► Market risk premium

► Stock’s beta

► Stock’s price

MGT201 Question No: 33 ( M a r k s: 1 )

What will be the Stock Y’s risk premium if the average share of stock Y has a required return of 20% and beta for that stock is 1.0? In addition, treasury bonds yield is 10%?

► 5%

► 10%

► 20%

► 30%

MGT201 Question No: 34 ( M a r k s: 1 )

What should be used to calculate the proportional amount of equity financing employed by a firm?

► The book value of the firm

► The sum of common stock and preferred stock on the balance sheet

► The current market price per share of common stock times the number of shares outstanding

► The common stock equity account on the firm's balance sheet

Ref:

MGT201 Question No: 35 ( M a r k s: 1 )

According to Traditionalist Theory, when an un-leveraged firm takes on more and more debt, which of the following phenomenon is observed?

► Cost of Capital increases, reaches a minimum point, and then falls

► Cost of Capital decreases, reaches a minimum point, and then rises

► Cost of Capital increases, reaches a maximum point, and then rises

► None of the given options

Lesson 36

MGT201 Question No: 36 ( M a r k s: 1 )

In the WACC equation (r_Dx_D + r_Ex_E + r_Px_P), x_D represents which of the following?

► Weight or Fraction of Total Capital value raised from bonds

► Weight or Fraction of Total Capital value raised from preferred stock

► Weight or Fraction of Total Capital value raised from common stock

► Weight or Fraction of Total Capital value raised from retained earnings

Lesson 34

x_D= Fraction of Debt = A Measure of Leverage

MGT201 Question No: 37 ( M a r k s: 1 )

In residual dividend model, what does the term ‘Conservatism‘ refer?

► Overvaluation of free cash flows

► Underestimation of free cash flows

► Overestimation of free cash flows

► None of the given option

Lesson 37

MGT201 Question No: 38 ( M a r k s: 1 )

The date on which the names of stockholders in the Stock Transfer Register of firm are documented is referred as:

► Declaration Date

► Holder-of-record Date

► Ex-Dividend Date

► Payment Date

Lesson 38

MGT201 Question No: 39 ( M a r k s: 1 )

XYZ Corporation has offered its shareholders the option that their dividends will be used to purchase additional shares of this corporation. This offer of XYZ Corporation is referred as:

► Stock repurchases

► Dividend reinvestment

► Stock dividends

► Stock splits

Dividend Reinvestment Plans (DRIP):Firms give stockholders option to automatically reinvest cash dividends by buying more of the same stock.

MGT201 Question No: 40 ( M a r k s: 1 )

When IRR < WACC it means that:

► Investment is acceptable as required rate of return is less then cost of capital

► Investment is not acceptable as required rate of return is less then cost of capital

► Investment is acceptable as required rate of return is equal to the cost of capital

► None of the given options is true

MGT201 Question No: 41 ( M a r k s: 1 )

Which of the following statement depicts the advantage of raising capital through debt?

► Debt adds to company specific risk

► If company does not pay interest it can be close down

► It can improve the return on equity

► Not required to pay fixed amount of interest

MGT201 Question No: 42 ( M a r k s: 1 )

Which of the following can be defined as “additional risk faced by common stockholders if firms take debt.”?

► Unsystematic risk

► Systematic risk

► Business risk

► Financial risk

Financial Risk: Additional Risk faced by Common Stockholders if Firm takes Debt. It is a pure debt related Risk.

MGT201 Question No: 43 ( M a r k s: 1 )

The decisions regarding working capital management of a firm are mainly concerned with which of the following?

► Current assets & long-term liabilities of balance sheet

► Current assets & current liabilities of balance sheet

► Fixed assets & current liabilities of balance sheet

► Fixed assets & long-term liabilities of balance sheet

Lesson 39

MGT201 Question No: 44 ( M a r k s: 1 )

If Current assets = Rs. 16,000,

Current liabilities= Rs. 10,000

Inventory= Rs. 2500

Calculate quick ratio for the firm?

► 1.35

► 6.0

► 1.60

► 0.25

Lesson 39

Quick Assets = Current Assets – Inventory=16000-2500=13,500

Acid Test or Quick Ratio = Quick Assets / Current Liabilities=13,500/10,000=1.35

MGT201 Question No: 45 ( M a r k s: 1 )

Which of the following states that “Cash is King and only Cash can pay the bills”?

► Fat cat working capital policy

► Lean & Mean perspective

► Balance Sheet Perspective

► Moderate working capital policy

Lesson 39

MGT201 Question No: 46 ( M a r k s: 1 )

Which of the following depicts the break even point in best way?

► EBIT = 0

► EBIT < 0

► EBIT > 0

► None of the given options

Lesson 30

Breakeven Point: Quantity of Sales at which EBIT = 0 therefore ROE = 0.

MGT201 Question No: 47 ( M a r k s: 1 )

Financial leverage is considered good in which of the following?

► Earning after interest & tax / Total asset > Interest cost

► Earning after interest & tax / Total asset < Interest cost

► Earning before interest & tax / Total asset < Interest cost

► Earning before interest & tax / Total asset > Interest cost

Lesson 32

MGT201 Question No: 48 ( M a r k s: 1 )

Suppose that there is no personal or corporate income tax and that the firm's WACC is not affected by its capital structure, then which of the following statements is true?

► A firm's cost of equity depends on the firm's business and financial risks

► The value of the firm is dependent on its capital structure

► The cost of equity increases as the firm's leverage decreases

► The greater the financial leverage, the more valuable is the firm

MGT201 Question No: 49 ( M a r k s: 1 )

Company A has to purchase another company. How do Company A pay for buying the other company?

► In Cash

► In Shares

► Bank Borrowing

► All of the given options

MGT201 Question No: 50 ( M a r k s: 1 )

A car manufacturing firm buys steel from a steel mill. Both these entities combined together to form a new firm. It is referred to which of the following?

► Horizontal Merger

► Vertical Merger

► Congeneric Merger

► Conglomerate Merger

Vertical Merger: merger of a supplier with a buyer

MGT201 Question No: 51 ( M a r k s: 1 )

Under efficient market, the effect of debt on WACC can be represented with the help of which of the following?

► Straight line

► U shaped curve

► Concave

► Time to time fluctuation

MGT201 Question No: 52 ( M a r k s: 1 )

What is the effect on WACC if debt increases under pure M&M theory model?

► It will increase

► It will decrease

► It remains unchanged

► None of the given options

MGT201 Question No: 53 ( M a r k s: 1 )

Most of the firms wish to maintain their capital structure in the form of which of the following?

► 100% equity

► 100% debt

► Mix of debt and equity

► 100% from the personal savings

Capital Structure is a Firm’s Mix of Debt & Equity.

MGT201 Question No: 54 ( M a r k s: 1 )

Under Net income approach, which of the following is a correct sequence of calculating cost of capital?

► Net income – Total firm’s market value – WACC

► Net income – WACC – total firm’s market value

► WACC – Net income – market value of equity

► Market value of firm – WACC – Net income

MGT201 Question No: 55 ( M a r k s: 3 )

If capital structure changes from equity to debt then what will be the effect on capital structure.

MGT201 Question No: 56 ( M a r k s: 5 )

How are dividends paid, and how do companies decide on dividend payments?

MGT201 Question No: 57 ( M a r k s: 5 )

Write a note on capital structure of organizations and cost of capital.

MGT201 Question No: 58 ( M a r k s: 10 )

Why is stock price volatility more likely to imply risk than earnings volatility? Explain with the help of some examples.

MGT201 Question No: 59 ( M a r k s: 10 )

Explain the following conditions:· IRR WACC> SML,· IRR

Business Administration

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Lesson 4-MGT411-Banking

Lecture No. 5 (MGT411)Banking

The informal arrangements that were the mainstay of the financial system centuries ago have since given way to the formal financial instruments of the modern world

Today, the international financial system exists to facilitate the design, sale, and exchange of a broad set of contracts with a very specific set of characteristics.

We obtain the financial resources we need from this system in two ways:

Directly from lenders and

Indirectly from financial institutions called financial intermediaries

A financial institution (like a bank) borrows from the lender and then provides funds to the borrower.

If someone borrows money to buy a car, the car becomes his or her asset and the loan a liability.

Borrowers sell securities directly to lenders in the financial markets.

Governments and corporations finance their activities this way

The securities become assets to the lenders who buy them and liabilities to the borrower who sells them

Financial and Economic Development

Financial development is inextricably linked to economic growth

There aren’t any rich countries that have very low levels of financial development.

A financial instrument is the written legal obligation of one party to transfer something of value – usually money – to another party at some future date, under certain conditions, such as stocks, loans, or insurance.

Written legal obligation means that it is subject to government enforcement;

The enforceability of the obligation is an important feature of a financial instrument.

The “party” referred to can be a person, company, or government

The future date can be specified or can be when some event occurs

Financial instruments generally specify a number of possible contingencies under which one party is required to make a payment to another

Stocks, loans, and insurance are all examples of financial instruments

Standardization

Standardized agreements are used in order to overcome the potential costs of complexity

Because of standardization, most of the financial instruments that we encounter on a day-to-day basis are very homogeneous

Communicate Information

Summarize certain essential information about the issuer

Designed to handle the problem of “asymmetric information”,

Borrowers have some information that they don’t disclose to lenders

Underlying Instruments (Primary or Primitive Securities)

E.g. Stocks and bonds

Derivative Instruments

Value and payoffs are “derived from” the behavior of the underlying instruments

Futures and options

Size of the promised payment

People will pay more for an instrument that obligates the issuer to pay the holder a greater sum.

The bigger the size of the promised payment, the more valuable the financial instrument

When the payment will be received

The sooner the payment is made the more valuable is the promise to make it

The likelihood the payment will be made (risk).

The more likely it is that the payment will be made, the more valuable the financial instrument

The conditions under which the payment will be made

Payments that are made when we need them most are more valuable than other payments

Value of Financial Instruments

Lecture No. 03 of Financial Management

Lecture No. 02 of Financial Management

Time Table of Daily Study

Lecture No. 3

Financial statements are prepared to demonstrate financial results to the users of financial information. These are the reports, which are prepared by the accounting department and are used by the different people inclusive of the management.

According to IASB framework:

“Financial statements exhibit its users the financial position, financial performance, and cash inflow and outflow analysis of an entity.”

Lecture No. 2

Lecture No. 1

Lecture No. 1 of Financial Management

Lecture No. 3 of COMMUNICATION

Lecture No. 2 of Communication

ENG301 - Lecture No. 1: Communication

MKT501 Marketing Management Final 2010 Paper solved by vuZs Team

MKT501 Marketing Management Final 2010 Paper solved with ref

MKT501 Final 2010 Paper Solved by Mehreen Humayun Spring 2010

MKT501- Marketing Management FINAM EXAM Spring 2010Solved by vuZs Team

MKT501 Final Term 2011 Current paper subjective by Different students

Marketing Management MKT 501 Subjective Questions (Past Papers)

FINALTERM Sp 2010 MGT411- Money & Banking Solved By vuZs Team

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Fall 2009 MGT201- Financial Management (Session - 3) Shared by Tahir Qazi Solved by vuZs Team Mehreen Humayun