BUS1202 Practice Questions for Midterm

Note the following questions represent examples of the type of questions you may find on the midterm
test. These questions do not constitute or fully represent what you may see on the midterm test.

Multiple Choice:

1. Lupe’s job duties include such tasks as deciding whether or not to introduce a new product or enter a
new foreign market. Lupe is most likely a member of ______ management.

a) middle

b) top

c) supervisory

d) line

Answer: b

2. Jackie is a manager who spends most of her time in day-to-day decisions assigning non-managerial
employees to specific jobs. Jackie is considered a ______ manager.

a) staff

b) supervisory

c) mid-level

d) technical

Answer: b

3. When Carla instructs new employees on handling customer complaints, she motivates them to
respond with patience and a positive attitude. Carla has effective ______ skills.

a) conceptual

b) visionary

c) intuitive

d) human

Answer: d

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4. Rosetta classifies and divides work into manageable units by determining the specific tasks necessary
to introduce a new product. Rosetta is involved in the ______ managerial function.

a) planning

b) organizing

c) directing

d) controlling

Answer: b

5. “The Booth Western Art Museum will educate, entertain, and inspire a diverse audience by creating a
place where people feel welcome, find meaning and value, and delight in exploring the uniqueness of
Western art and culture.” This quotation is which of the following?
a) mission statement
b) company proclamation
c) corporate manifesto
d) contingency goal statement
Answer: A

6. A petroleum refinery stockpiles crude oil so that it can easily switch between producing home heating
oil and gasoline, depending on relative demand. This is an example of ______ planning.

a) tactical

b) strategic

c) contingency

d) operational

Answer: b

7. Serguis is a member of his firm’s strategic planning team. He has identified several untapped markets
that exist in other countries. His observation should be listed as a(n) ______.

a) opportunity

b) weakness

c) strength

d) threat

Answer: a

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8. Morgan is the manager of a local Circuit City and has put up signs promoting the store’s weekly sale
products. Morgan’s assignment would be classified as a ______.

a) programmed decision

b) nonprogrammed decision

c) span of management

d) matrix

Answer: a

9. Harriet, the marketing manager of Video One, allows subordinates to make most of the decisions for
the department. Harriet’s leadership style can best be described as ______.

a) free-rein

b) autocratic

c) democratic

d) persuasive

Answer: a

10. A local bookstore uses an organizational structure in which authority and responsibility are jointly
held by the entire group rather than by a single manager. This company is using a ______ organizational
structure.

a) functional

b) matrix

c) committee

d) line-and-staff

Answer: c

11. Which production system is Smith-Kline Beecham using when it combines calcium carbonate,
simethicone, corn syrup, and other ingredients to make Tums Plus?

a) service

b) analytic

c) synthetic

d) extractive

Answer: c

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12. Engineers at Ford Motor Company use computers to build new car models in the virtual world
before they are ever built in automobile plants. These engineers are using ______.

a) computer-aided manufacturing

b) flexible manufacturing systems

c) computer-aided design

d) computer-integrated manufacturing

Answer: c

13. Which type of company would be most interested in locating in an area close to its market?

a) automobile manufacturers

b) shipbuilding companies

c) dry cleaners

d) pharmaceutical companies

Answer: c

14. Which of the following is NOT a primary task of production managers?

a) planning the production process

b) selecting the most appropriate layout

c) controlling the production process

d) determining what products to produce

Answer: d

15. Which of the following situations would present a challenge for a just-in-time (JIT) investment
system?

a) vendor-managed inventory

b) sudden increase in demand

c) increase in the number of suppliers

d) long-term relationships with suppliers

Answer: b

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16. The process of comparing the quality of the firm’s output with the quality of the output of other
firms is known as

a) quality control.

b) benchmarking.

c) quality studies.

d) follow-up.

Answer: b

17. Tidewater Company uses 100,000 pounds of fresh flowers each year. Because of rising energy costs,
it has become more expensive for Tidewater to store flowers. All other factors being equal, Tidewater
should ______ its inventory of fresh flowers, which would ______ the risk of running out of inventory.

a) reduce; have no effect on

b) increase; have no effect on

c) reduce; increase

d) increase; increase

Answer: c

18. The utility that is created when a salesperson at a car dealership completes the sales contract is
______ utility.

a) place

b) form

c) time

d) ownership

Answer: d

19. Maria is campaigning for city council and talks with prospective voters in her ward about their
concerns. Maria is engaged in ______ marketing.

a) person

b) place

c) cause

d) idea

Answer: a

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20. Which of the following is the first step in developing a marketing strategy?

a) Identify a target market.

b) Develop the right product.

c) Decide how to promote the product.

d) Implement the appropriate distribution system.

Answer: a

21. Mona designs the packages and chooses the brand names for goods produced by her firm. Mona is
involved in which part of the marketing mix?

a) promotion strategy

b) distribution strategy

c) product strategy

d) pricing strategy

Answer: c

22. One of the most common forms of segmenting consumer markets uses characteristics such as age,
income, household size, and/or ethnic group. This is known as ______ segmentation.

a) geographic

b) demographic

c) end-use

d) psychographic

Answer: b

23. Dividing a market into similar groups on the basis of their locations is known as ______
segmentation.

a) demographic

b) geographical

c) psychographic

d) product-related

Answer: b

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24. Bailey seeks out cleaning products that are environmentally friendly and is willing to pay extra for a
“green” brand. What is the main factor for Bailey’s purchase?

a) interpersonal determinants

b) relationship marketing

c) personal determinants

d) end-use segmentation

Answer: c

25. A university offers alumni a special Visa card with the university's logo printed on the front. Each
time the cardholder uses the card, the university receives a small percentage of the amount charged.
This is an example of ______.

a) co-branding

b) co-marketing

c) a frequency marketing program

d) an affinity program

Answer: d

26. Items that consumers purchase frequently, immediately, and with little effort are ______ products.

a) convenience

b) shopping

c) specialty

d) capital

Answer: a

27. A combination of product lines represents a company's ______.

a) product mix

b) product cluster

c) product life cycle

d) distribution strategy

Answer: a

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28. In which stage of the product life cycle do profits generally first appear?

a) decline stage

b) introductory stage

c) growth stage

d) maturity stage

Answer: c

29. Charles works for Whirlpool and is producing a new washer/dryer unit. He is collaborating with the
marketing staff to arrange for a series of designs, tests, and functioning prototypes. Charles is working in
which stage of new-product development?

a) test marketing

b) screening

c) commercialization

d) product development

Answer: d

30. Which of the following is NOT a role of packaging and labelling?

a) Control cost.

b) Identify products and communicate usage.

c) Protect the product from damage.

d) Comply with government regulations.

Answer: a

31. XYZ over the years has been using a brand name common to all its range of products. This type of
branding is categorized as ______.

a) individual branding

b) strategic branding

c) tactical branding

d) family branding

Answer: d

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32. In the movie, The Social Network, the actor portraying Mark Zuckerberg is featured wearing products
by Gap and the North Face. This form of promotion is known as ______.

a) trade promotion

b) institutional advertising

c) creative selling

d) product placement

Answer: d

33. Informative advertising is most apt to be used in which stage of the product life cycle?

a) maturity stage

b) growth stage

c) decline stage

d) introductory stage

Answer: d

34. Madison owns an upscale accessory boutique and drastically reduced some earrings to make room
for new inventory. When the earrings didn’t sell in the “discount basket,” she put them back on the shelf
at regular price and they sold within a month. What is her customers’ perception of price?

a) value-quality

b) price-quality

c) price-prestige

d) prestige-quality

Answer: b

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Long answer:

Question 1:

Explain why a strong corporate culture important to a company’s success. Explain how the corporate
culture is linked to leadership style.

Suggested solution:

A strong corporate culture has a widespread effect on all employees by setting a certain productive
climate and creating a healthy work environment. It encourages employees to work harder and smarter
toward the company’s goals, it promotes high morale, and it leads to longevity and loyalty. The corporate
culture within a company usually is directly related to the leadership style of top management. For
example, Southwest Airlines’ top management uses democratic leadership, which leads to empowerment
among employees and a positive corporate culture that embraces humor.

Question 2:

Describe the differences between mass production, flexible production, and customer-driven
production.

Suggest Solution:

Mass production is a system for manufacturing products in large amounts through effective
combinations of employees with specialized skills, mechanization, and standardization. Mass production
makes outputs available in large quantities at lower prices than individually crafted items would cost.
While mass production efficiently creates large batches of similar items, flexible production can cost-
effectively produce smaller batches. Flexible production generally involves using information technology
to share the details of customer orders, programmable equipment to fulfill the orders, as well as skilled
people to carry out whatever tasks are needed. Customer-driven production systems evaluate customer
demands in order to link what a manufacturer makes with what customers want to buy. One method is
to establish computer links between factories and retailers' systems, using data about sales as the basis
for creating short-term forecasts and designing production schedules to meet those forecasts. Another
is to make products specifically to order.

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Question 3:
Describe each of the methods used to segment consumer and business markets.

Suggested Solution:

To segment a consumer market, the following methods are used: geographical, demographic,
psychographic, and product-related.
• Geographic segmentation: Dividing an overall market into similar groups on the basis of their locations
• Demographic segmentation: Dividing markets on the basis of various demographic or socioeconomic
characteristics, such as gender, age, income, occupation, household size, stage in family life cycle,
education, or ethnic group
• Psychographic segmentation: Dividing consumer markets into groups with similar attitudes, values,
and lifestyles
• Product-related segmentation: Dividing consumer markets into groups that are based on benefits
sought by buyers, usage rates, and loyalty levels

To segment a business market, the following methods are used: customer-based, end-use, and
geographical.
• Geographic segmentation targets geographically concentrated industries
• Demographic, or customer-based, segmentation designs a good or service intended for a specific
organizational market (e.g., healthcare institutions)
• End-use segmentation: A marketing strategy that focuses on the precise way a B2B purchaser will use
a product

Question 4:

Identify and describe the major stages of the product life cycle.

Suggested Solution:

The product life cycle refers to the four stages a product goes through from the time it first enters the
market until it is no longer a viable product. These stages are introduction, growth, maturity, and
decline. In the introduction stage, the firm tries to promote demand for its new offering; inform the
market about it; give free samples to entice consumers to make a trial purchase; and explain its
features, uses, and benefits. During the growth stage, sales climb quickly as new customers join early
users who now are repurchasing the item. Word-of-mouth referrals and continued advertising and other
special promotions by the firm induce others to make trial purchases. In the maturity stage, industry
sales at first increase, but they eventually reach a saturation level at which further expansion is difficult.
Competition also intensifies, increasing the availability of the product. Sales continue to fall in the
decline stage, the fourth phase of the product life cycle. Profits decline and may become losses as
further price-cutting occurs in the reduced overall market for the item.

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Question 5:

Describe the four alternative pricing strategies used by marketers. Give an example of the circumstances
under which each might be selected.

Suggested Solution:

• A skimming pricing strategy sets an intentionally high price compared to those of competing
products.
• A penetration pricing strategy sets an intentionally low price as a major marketing weapon.
• Everyday low pricing (EDLP) maintains continuous low prices rather than relying on short-term
price cutting tactics, and one version of this, discount pricing, attracts customers to a new product
with dropped prices for a set period of time.
• Competitive pricing matches other firms’ prices, and then shifts the focus to concentrate marketing
efforts on the product, distribution, and promotional elements.
Skimming is used when introducing a distinctive product with little or no competition. Penetration is used
when entering a new industry characterized by dozens of competing brands. EDLP works well when large
retailers and discount stores set prices to attract customer traffic into their stores, and discount pricing
can be effective but only for short-term periods. Competitive pricing is used when focusing on
differentiating a product and eliminating price as a variable.

Question 6:

An efficient facility layout can reduce material handling, decrease costs, and improve product flow
through the facility. Discuss the three common layouts namely process, product and fixed position.

Suggested Solution:

A process layout groups machinery and equipment according to their functions. The work in process
moves around the plant to reach different workstations. A process layout often makes it easier to
produce a variety of nonstandard items in relatively small batches. Thus, it is often used in flexible
manufacturing.

A product layout, also called an assembly line, sets up production equipment along a product flow line.
The work in process moves along this line past workstations. This type of layout efficiently produces
large numbers of similar items, but it may be inflexible, with room for only a few product variations.
Thus, this layout is often used with mass manufacturing.

A fixed-position layout places the product in one spot. The workers, materials, and equipment go to the
product’s location. This approach suits very large, bulky, heavy or fragile products. Fixed‐position layouts
are used in several industries, including construction, shipbuilding, aircraft and aerospace, and oil
drilling. In all of these industries, the nature of the product generally dictates a fixed‐position layout.
Thus, this layout cannot accommodate mass production.

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Question 7:

Compare and contrast a push marketing strategy and a pulling marketing strategy. When is it desirable
for a firm to use each strategy?

Suggested Solution:

A firm is said to be using a push strategy for marketing when it uses personal selling to market an item
to wholesalers and retailers in a company’s distribution channels. A pull strategy does not use personal
selling, but rather non-personal selling tactics (advertising, sales promotion, etc.)

New business adopts a push strategy to find retail outlet for their products. It helps the firm to be
exposed to the market. It also helps to sell the product faster since customers make on the spot buying
decisions.

In contrast, in a pulling strategy, firms try to generate consumer demand mainly through advertising and
sales promotion appeals. Potential buyers will then request that their suppliers— retailers or local
distributors—carry the product, which pulls it through the distribution channel.

Most firms will use a combination of push and pull marketing to reap the benefits of both.

Question 8:

Tanner Company's most recent income statement is presented below:

Sales $75,000
Less: Variable Expenses $45,000
Contribution Margin $30,000
Less: Fixed Expenses $36,000
Operating loss ($6,000)

The company sells its only product for $15 per unit. There were no beginning or ending inventories.

Required:

a) Compute the company's break-even point in units sold.

b) The sales manager is convinced that a $10,000 increase in the advertising budget would increase total
sales by $30,000 (2,000 units). Would you advise the increased advertising outlay?

c) If sales price was reduced to $13 and sales volume increased by 4,000 units, what would be the
company’s operating income? Would you advise this action?

d) If variable costs were reduced by $2 per unit and advertising (fixed costs) were decreased by $6,000,
what would be the company’s operating income? Would you advise this action?

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Suggested Solution:

a)

Break even = Fixed costs/CM per unit

Sales price per unit = $15

Units sold = $75,000/$15 = 5,000

Variable cost per unit = $45,000/5,000 = $9

CM per unit = $15-+$9 = $6

BE = $36,000/$6 = 6,000 units

b)

Sales = $75,000 + $30,000 $105,000

Variable costs = $9 x 7,000 units $63,000

Fixed costs = $36,000 + $10,000 $46,000

Operating profit -$4,000

I would advise to do the advertising increase as profits go up by $2,000.

Alternative analysis:

Increase in contribution margin ($15-$9) x 2,000 units = $12,000

Increase costs $10,000

Net advantage $2,000

New operating income if advertising is done = -$6,000+$2,000 = -$4,000

c)

Sales = (5,000 units + 4,000 units) x $13 $117,000

Variable costs = $9 x 9,000 units 81,000

Fixed costs $36,000

Operating profit 0

I would advise to reduce the selling price, as this improves our situation from an operating loss of $6,000
to breakeven.

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Alternative analysis:

Sales price decrease ($2 x 5,000) $10,000

CM increase due to volume (4,000) x ($13-$9) $16,000

Net advantage $6,000

New operating income if sales price is decreased = -$6,000 + $6,000 = 0

d)

Sales $75,000

Variable costs = ($9-$2) x 5,000 units 35,000

Fixed costs = $36,000 - $6,000 $30,000

Operating profit $10,000

I would advise this plan as profits increase by $16,000 (loss of $6,000 vs profit of $10,000).

Alternative Analysis:

Variable costs saved ($2 x 5,000) 10,000

Fixed cost savings $6,000

Net advantage $16,000

New operating income if variable costs are reduces and advertising is reduced = -$6,000 + $16,000 =
$10,000

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