Buad 474 Chapter 8

Front 1

Merchandising

Back 1

: is the planning and control of the buying and selling of goods and services to help the retailer realize its objectives.
-retailing and merchandising not synonymous, retailing are all the business activities that are necessary to sell goods and services.

Front 2

Merchandise budget

Back 2

Is a plan of projected sales for an up-coming season when and how much merchandise is to be purchased and what markups and reductions will likely occur. Forces the retailer to develop a formal outline of merchandising objectives for the upcoming selling season.

Front 3

Gross margin

Back 3

: Is the difference between net sales and cost of goods sold. (net sale-goods sold).

Front 4

Determining Planned Sales for the Month:

Back 4

(planned Sales percentage for the Month) × (Planned Total Sales)=(Planned sales for the month).

Front 5

Determining Planned BOM Stock for the Month:

Back 5

(planned Sales for the Month) × (Planned BOM stock-to-sales ratio for the month) = (planned BOM stock for the Month).

Front 6

Determining Planned Retail Reductions for the Month

Back 6

(Planned Sales for the Month) × (planned retail reduction Percentage for the Month) = ( Planned retail reductions for the Month).

Front 7

Determining planned EOM stock for the month:

Back 7

(planned BOM stock for the following month) = (planned EOM stock for the current month)

Front 8

Determining Planned Purchases at retail for the month

Back 8

(Planned Sales for the Month) + (planned retail reductions for the month) + (Planned EOM Stock for the month) – (planned BOM stock for the Month)= (planned Purchases at retail for the month).

Front 9

Determining Planned Purchases at Cost for the Month:

Back 9

(planned Purchases at retail for the Month) × (100% -Planned initial Markup percentage) =(planned Purchases at cost for the month)

Front 10

Determining Planned Initial Markup for the month:

Back 10

(Planned Purchases at retail for the Month) × (planned Initial Markup percentage) = (planned initial markup for the month)
Or
(planned purchases at retail for the month)- (planned purchases at cost for the month) = (planned initial markup for the month)

Front 11

Determining Planned Gross Margin for the month:

Back 11

(planned initial markup for the month) – (planned retail reductions for the Month) = (planned gross margin for the month)

Front 12

Planned BOM stock to sales ratio:

Back 12

calculated from retailer’s planned turnover goals.
Example retailer wants a turnover rate of 4.0. by dividing the annual turnover rate into 12 (number of months in a year), the average BOM stock to sales for the year can be computed, in this case 12 divided by 4 equals 3 thus the average stock to sales ratio for the season is 3.

Front 13

Planned Sales Percentage:

Back 13

Planned Sales ÷ total planned sales

Front 14

Planned Retail Reduction Percentage

Back 14

Planned retail reductions ÷ total planned retail reductions

Front 15

Forecasting future sales

Back 15

If inflation is 10 percent and no other changes have occurred in the retail environment, then the retailer planning on selling the same physical volume as the previous year should expect a 10% and no other changes have occurred in the retail environment, then the retailer planning on selling the same physical volume as the previous year should expect a 10 % increase in this season’s dollar sales.
Example: suppose that last year’s sales were $100,000, inflation is 10% and the retailer expects its market share to increase by 8% while the total market remains stable. What should the projected sales be? Use this equation:
Total Sales= Average sales per transaction × Total transactions
So… average sales would increase by 10% level of inflation to 1.10 times last year’s sales, and total transactions would increase by 8% gain in market share to 1.08 times last year’s total transactions, for an increase in total sales of 1.188 times (1.10 × 1.08), resulting in total sales increase of $18,800 or budgeted total sales of $118,800.

Front 16

Determining planned purchases at retail and cost:

Back 16

(Planned sales + planned retail reductions + planned EOM inventory )- Planned BOM inventory
Example : $75,000 + $7,500 + $300,000 - $300,000 = $82,500
Next planned purchase at cost is calculated: given markup 45% then cost must be 55% , so planned purchase cost is 55% × $82,500=$45,375). And planned initial markup is 45% × $82,500 = $37, 125.

Front 17

Income Statement:

Back 17

Is a financial statement that provides a summary of the sales and expenses for a given time period usually a month, quarter, season or year. Good so can see trends
Also called Profit and loss statement

Front 18

Gross sales

Back 18

are the retailer’s total sales including sales for cash or for credit

Front 19

Returns and allowances

Back 19

are refunds of the purchase price or downward adjustments in selling prices due to customers returning purchases, or adjustments made in the selling price due to customer dissatisfaction with product or service performance.

Front 20

Net sales:

Back 20

are gross sales less returns and allowances

Front 21

Cost of goods sold

Back 21

is the cost of merchandising that has been sold during the period

Front 22

Operating expenses

Back 22

are those expenses that a retailer incurs in running the business other than the cost of the merchandise.

Front 23

Operating profit

Back 23

is gross margin less operating expenses

Front 24

Other income or expenses:

Back 24

includes income or expense items that the firm incurs which are not in the course of its normal retail operations,

Front 25

Net profit:

Back 25

is operating profit plus or minus other income or expenses

Front 26

Balance sheet

Back 26

shows the financial condition of a retailer’s business at a particular point in time, as opposed to the income statement which reports on the activities over a period of time. It identifies and quantifies all the firm’s assets and liabilities. Comparing a current balance sheet with one from a previous time period enables a retail analyst to observe changes in the firm’s financial condition.
Assets= liabilities +net worth
Both sides must always be in balance

Front 27

Asset:

Back 27

is anything of value that is owned by the retail firm

Front 28

Current assets

Back 28

are assets that can be easily converted into cash within a relatively short period of time (usually a year or less).

Front 29

Accounts and/or notes receivable:

Back 29

amounts that customers owe the retailer for goods and services.

Front 30

Prepaid expenses

Back 30

are those items for which the retailer has already paid, but the service has not been completed.

Front 31

retail inventories

Back 31

comprise merchandise that the retailer has in the store or in storage and is available for sale.

Front 32

Noncurrent assets

Back 32

are those assets that cannot be converted to cash in a short period of time (usually 12 months) in the normal course of business.

Front 33

Goodwill:

Back 33

is an intangible asset usually based on customer loyalty, that a retailer pays for when buying an existing business.

Front 34

Total assets

Back 34

equal current assets plus-noncurrent assets plus goodwill

Front 35

Liability:

Back 35

is any legitimate financial claim against the retailer’s assets.

Front 36

Current liabilities

Back 36

are short-term debts that are payable within a year.

Front 37

Accounts payable

Back 37

are amounts owed vendors for goods and services

Front 38

Long-term liabilities

Back 38

are debts that are due in a year or longer.

Front 39

Total liabilities

Back 39

equal current liabilities plus long-term liabilities.

Front 40

Net worth (owner’s equity

Back 40

is total assets less total liabilities

Front 41

Cash Flow

Back 41

lists in detail the source and type of all revenue (cash inflows) and the use and type of all expenditures (cash outflows) for a given time period. cash inflows >cash outflows=positive cash flow.
Cash outflow> cash inflows= negative cash flows.

Front 42

FIFO

Back 42

stands for first in, first out and values inventory based on the assumption that the oldest merchandise is sold before the more recently purchased merchandise. Merchandise on the shelf will reflect the most current replacement price, during inflationary periods this method allows “inventory profits” (caused by selling the less expensive earlier inventory rather than the more expensive newer inventory) to be included as income.

Front 43

LIFO

Back 43

stands for last in, first out and values inventory based on the assumption that the most recently purchased merchandise is sold first and the oldest merchandise is sold last. In times of rapid inflation most retailers use the LIFO method, resulting in lower profits on the income statement, but also lower income taxes. Most retailers also prefer to use LIFO for planning purpose, since it accurately reflects replacement costs. The internal revenue service permits a retailer to change its methods of accounting only once.