MODULE 9—EVALUATING THE EFFECTIVENESS OF THE

ORGANIZATION

MULTIPLE CHOICE

1. Sales organization effectiveness evaluations generally result in

a. recommendations that are tactical in nature,
such as specific actions designed to improve
the performance of an individual salesperson.
b. suggestions to cut back staff positions.
c. the implementation of new cost containment
procedures.
d. general strategic or policy changes.
e. a complete restructuring of the organization.
ANS: D REF: pg. 245

2. A sales organization audit can best be defined as

a. a systematic and diagnostic tool that is used to
determine the adequacy of a firm's advertising
expenditures.
b. a prescriptive device that is generally used in
the redesign of territories or districts.
c. a framework that can be used to assess
salespeople for promotion potential.
d. a tool that is used by all organizations to help
them achieve their goals.
e. a comprehensive, systematic, diagnostic and
prescriptive tool used to assess the adequacy
of a firm's sales management process.
ANS: E REF: pg. 247

3. Recruitment, selection, and sales training are examples of factors considered in this area of the
sales organization audit framework:
a. sales-management evaluation.
b. sales-organization strategies.
c. sales-organization environment.
d. sales-management functions.
e. sales-organization planning system.
ANS: D REF: pg. 247

4. The adequacy of sales managers and management practices is assessed under this area of the
sales organization audit framework:
a. sales-management evaluation.
b. sales-organization strategies.
c. sales-organization environment.
d. sales-management functions.
e. sales-organization planning system.
ANS: A REF: pg. 247

5. Intraorganizational factors such as company organization are considered in this area of the
sales organization audit framework:
a. sales-management evaluation.
b. sales-organization strategies.
 c. sales-organization environment.
d. sales-management functions.
e. sales-organization planning system.
ANS: C REF: pg. 247

6. A benchmarking study should provide all of the following except

a. a measure that compares performance for the
benchmarked process relative to the
organization studied.
b. identification of the organization’s
performance gap relative to benchmarked
performance levels.
c. identification of best practices and facilitators
that produced the results observed during the
study.
d. performance goals for the process studied.
e. a set of solutions to commonly encountered
performance problems.
ANS: E REF: pg 250

7. According to the text, which of the following is not included in the implementation and control
phase of the benchmarking process?
a. Communicate benchmark findings and gain
acceptance.
b. Establish functional goals.
c. Develop action plans.
d. Implement specific action plans and monitor
progress.
e. Recalibrate the benchmark.
ANS: A REF: pg 250

8. Which of the following is not considered a key to successful benchmarking?

 a. Clearly identify critical activities that will
improve quality or service or reduce cost.
b. Properly prepare and benchmark only one
activity at a time.
c. Provide adequate resources--financial and
personnel.
d. Make sure that you clearly understand the
processes of your benchmarking partner
company first.
e. Verify that your benchmarking partner
company is the best in its class.

ANS: D REF: pg. 250

9. The most often-used sales definition defines a sale as

a. paid order.
b. shipped order.
c. placed order.
d. received order.
e. delivered order.
ANS: B REF: pg. 251

10. When using a top-down perspective in sales analysis, the emphasis is on identifying potential
problem areas at each level and then
a. using analysis at the next highest level to
pinpoint the specific problem.
b. having that level's sales management analyze
the problem and provide an explanation.
c. using analysis at lower levels to pinpoint the
specific problems.
d. analyzing what impact that problem might
have on the next level's performance.
e. attempting to prevent these problems from
occurring through effective sales
management.
ANS: C REF: pg. 253

11. The sales growth experienced by different organizational levels can be determined by
a. a comparison of actual sales results to those
achieved by competitors.
b. a comparison of actual sales results to sales
forecasts.
c. a comparison of actual sales results to sales
quotas.
d. a comparison of actual sales results to
previous periods' sales.

e. a comparison of the sales effectiveness index

 of the different organization levels.

ANS: D REF: pg. 255

12. The most common type of sales organization assessment focuses on

a. cost analysis.
b. profitability analysis.
c. productivity analysis.
d. sales analysis.
e. market-share analysis.
ANS: D REF: pg. 256

13. Which of the following provides a benchmark for the evaluation of selling costs?
a. Sales quotas
b. Selling budgets
c. Cost quotas
d. Variance analysis
e. Sales forecasts
ANS: B REF: pg. 256

14. What is the key sales management budgeting task?

a. To develop sales forecasts that will provide
the expected level of sales for the next
planning period.
b. To translate the sales forecasts into sales
quotas for each territory, district, etc.
c. To determine the amount of selling budget
necessary to support the sales function.
d. To determine the best way to allocate sales
resources throughout the sales organization
and across the different selling activities.
e. To instill a sales consciousness throughout the
sales organization.

ANS: D REF: pg. 256

15. Which of the following would not be an expense category for a selling budget?
a. Recruiting expenses
b. Salespeople's lodging expenses
c. Production expense
d. Salespeople's salaries
e. Sales office expense
ANS: C REF: pg. 256

16. A more centralized sales organization will place budget responsibility

a. with the sales manager.
b. with the salesperson.
c. at lower sales management levels.
d. at higher sales management levels.

e. with the accounting personnel.

ANS: D REF: pg. 257

17. In budgeting for each expense category, a sales manager should attempt to
a. set the budget at the lowest possible level.
b. determine the lowest expenditure level
necessary to achieve the sales quotas.
c. cut costs from last year's level of expenditure.
d. justify the highest possible level of
expenditure in order to have some flexibility
in the budget.
e. improve profitability in the short run by
cutting unnecessary expenditures for training
and travel.
ANS: B REF: pg. 257

18. The most often used method to establish selling budgets is

a. objective and task method.
b. profitability projections.
c. cost-justification method.
d. zero-based budgeting.
e. percentage-of-sales method.
ANS: E REF: pg. 257

19. Which method of determining expenditure levels for selling expense categories depends upon
accurate sales forecasts?
a. Objective and task method
b. Zero-based budgeting
c. Cost-justification method
d. Profit margin budgeting
e. Percentage-of-sales method
ANS: E REF: pg. 257

20. The method calculates an expenditure level for each category by multiplying an
expenditure percentage times forecasted sales.
a. objective and task
b. expenditure projection
c. cost-justification
d. zero-based budgeting
e. percentage-of-sales
ANS: E REF: pg. 257

21. The basic form of this method for determining expenditure levels for selling expense categories
could be called zero-based budgeting:
a. objective and task method.
b. profitability projections.
c. cost-justification method.
d. profit margin budgeting.

e. percentage-of-sales method.

ANS: A REF: pg. 257

22. Which of the following statements regarding the objective and task method of determining
 expenditure levels for selling expense categories is true?
a. It is probably the most popular method for
establishing selling budgets.
b. This method calculates an expenditure level
for each category by multiplying an
expenditure percentage times forecasted sales.
c. This method uses typical expenditure
percentages provided by readily available
published sources.
d. Each sales manager prepares a separate
budget request; these are reviewed and
through an iterative process selling budgets
are approved.
e. This method separates out the major accounts,
which are then budgeted for individually.

ANS: D REF: pg. 257

23. When actual selling costs far exceed budgeted costs

a. it is considered a bad situation, as the
objective is to minimize selling costs.
b. it is considered a good situation, as high
selling costs automatically mean high sales.
c. it is cause for concern, since costs are only
allowed to exceed the budgeted amount by a
small percentage.
d. it is cause for concern, since top management
will cut future budgets to reduce costs.
e. it is cause for further analysis to discover
whether a specified relationship between sales
and selling costs was maintained.

ANS: E REF: pg. 257

24. The two most direct approaches for evaluating sales organization effectiveness are
a. sales analysis and income statement analysis.
b. productivity analysis and cost analysis.
c. sales analysis and cost analysis.
d. residual income analysis and sales analysis.
e. sales analysis and profitability analysis.
ANS: C REF: pg. 258

25. One of the major difficulties in developing the income statement approach in profitability analysis is
a. determining how to handle costs that are
shared between organizational levels or sales
types.
b. determining the cost of goods sold for

individual organizational levels or sales types.

c. breaking down total sales into individual unit
sales.
d. explaining how to interpret the results to
senior managers.
 e. figuring the investment in assets required to
generate the net profit or profit contribution.

ANS: A REF: pg. 258

26. In this type of profitability analysis, the shared selling costs are allocated to individual units based
on some type of cost allocation procedure:
a. the contribution approach to income statement
analysis.
b. the full-cost approach to residual income
analysis.
c. return on assets managed approach.
d. the full-cost approach to income statement
analysis.
e. the contribution approach to residual income
analysis.
ANS: D REF: pg. 258-59

27. In this approach to profitability analysis, the indirect or shared costs are not included in the
individual unit analysis:
a. the contribution approach to income statement
analysis.
b. the full-cost approach to residual income
analysis.
c. return on assets managed approach.
d. the full-cost approach to income statement
analysis.
e. the contribution approach to residual income
analysis.
ANS: A REF: pg. 259

28. Though two approaches to income statement analysis have been used, there seems to be a trend toward
a. the full-cost approach.
b. the cost-allocation approach.
c. the contribution approach.
d. the gross-margin approach.
e. the indirect-cost approach.
ANS: C REF: pg. 259

29. The basic concept underlying the use of this analytical method is that costs are allocated to
individual units on the basis of how the units actually expend or cause these costs.
a. activity-based costing
b. cost analysis
c. profitability analysis
d. hierarchical sales analysis

e. productivity analysis

ANS: A REF: pg. 260

30. Please calculate the asset turnover rate if sales = $9,000,000; cost of goods sold = $5,000,000;
and total assets managed = $6,000,000:
 a. 1.8.
b. .67.
c. 1.2.
d. 1.5.
e. .83.
ANS: D REF: pg. 260

31. Please calculate the profit contribution as a percentage of sales to be used in the ROAM calculation,
if sales = $10,000,000; accounts receivable = $4,000,000; and profit contribution = $2,000,000:
a. 20 percent.
b. 40 percent.
c. 50 percent.
d. 5 percent.
e. 25 percent.
ANS: A REF: pg. 260

32. The assets that are typically included in the formula for calculating return on assets managed
(ROAM) are
a. accounts payable and short-term loans.
b. accounts receivable and notes payable.
c. inventory and fixed assets.
d. accounts payable and inventory.
e. inventory and accounts receivable.
ANS: E REF: pg. 261

33. District 1 has a poor level of ROAM. However, their profit contribution percentage is acceptable,
but they have a very low asset turnover ratio. What might cause this?
a. Selling too many low-margin products
b. Problems with accounts payable
c. Negotiating low selling prices
d. Problems with accounts receivable
e. Excessive selling expenses
ANS: D REF: pg. 261-62

34. Which of the following actions would improve future ROAM performance?
a. Increasing selling expenses
b. Reducing inventory levels
c. Increasing accounts receivable
d. Reducing total sales
e. Reducing short-term notes
ANS: B REF: pg. 262
35. A major advantage of productivity ratios is
a. the ability to integrate sales growth and
productivity assessments into one analysis.
b. the ability to compare total productivity to
targeted productivity.
c. the inclusion of asset investment
considerations in the ratio analysis.
d. that they can be compared directly across the
entire sales organization and with other sales
organizations.
e. that they eliminate the need for allocation
judgments and are therefore viewed as more
objective.
ANS: D REF: pg. 262

36. Which of the following statements regarding productivity analysis is false?

a. The most useful input unit for productivity
analysis is total sales per salesperson.
b. Productivity is typically measured in terms of
ratios between outputs and inputs.
c. Sales productivity and profitability are highly
interrelated.
d. Productivity analysis is managerial oriented.
e. Improvements in sales productivity should be
achieved by an increase in output with the
same level of input.
ANS: A REF: pg. 262

TRUE/FALSE

1. When assessing the sales organization, the success of the sales organization must be
differentiated from the success of individual salespeople.

ANS: T REF: pg. 245

2. Assessing the success of a sales organization is difficult because so many factors must be considered.

ANS: T REF: pg 245

3. Sales organization effectiveness and salesperson performance are essentially the same.

ANS: F REF: pg 246

4. The sales organization audit is a tool that needs to be used only by those firms that are not
achieving their goals.

ANS: F REF: pg. 247

5. The sales organization audit typically will provide an assessment of sales management functions.

ANS: T REF: pg. 247-48

 6. Much of the information collected in a sales organization audit comes from various sales managers
and salespeople.

ANS: T REF: pg. 248

7. The costs of a sales organization audit, in time and money, typically outweigh the benefits.

ANS: F REF: pg. 248

8. The probability of identifying and correcting potential problems before they become
troublesome increases with the regularity of the auditing process.

ANS: T REF: pg. 248

9. Benchmarking is an ongoing measurement and analysis process that compares an

organization’s current operating practices with average industry operating practices.

ANS: F REF: pg. 249

10. Benchmarking is an ongoing measurement and analysis process that compares an

organization’s current operating practices with the “best practices” used by world-class
organizations.

ANS: T REF: pg. 249

11. A benchmarking study should identify the organization's performance gap relative to
benchmarked performance levels.

ANS: T REF: pg. 250

12. The first step in the benchmarking process is to gather data.

ANS: F REF: pg. 250

13. One of the keys to successful benchmarking is to be sure to properly prepare and benchmark at
least two activities at a time.

ANS: F REF: pg. 250

14. Some firms use customer satisfaction surveys to help evaluate salesforce effectiveness.

ANS: T REF: pg. 251

15. In sales analysis, the emphasis is on assessing the costs incurred by the sales organization to
generate the achieved levels of sales.

ANS: F REF: pg. 251

16. It is possible for sales volume to seem unchanged even though units sold increased.

ANS: T REF: pg. 252

17. Sales managers at each level need sales analyses at their level and the next level above for evaluation
 and control purposes.

ANS: F REF: pg. 252

18. The hierarchical sales analysis begins with total sales for the sales organization and proceeds
through each lower level in the sales organization.

ANS: T REF: pg. 253

19. Using the hierarchical sales analysis, the identification of a major sales deviation in a territory
would lead to an examination of the district of which it is a part.

ANS: F REF: pg. 253

20. A sales analysis might be conducted for different types of distribution.

ANS: T REF: pg. 253

21. One type of sales analysis involves comparisons with previous period.

ANS: T REF: pg. 253

22. The analysis of different types of sales at different organizational levels increases management's
ability to detect and define problem areas in sales performance.

ANS: T REF: pg. 254

23. Sales results in excess of the sales quota will have index values less than 100, while results lower
than quota will have index values greater than 100.

ANS: F REF: pg. 255

24. Cost analysis is the most often-used approach for evaluating sales organization effectiveness.

ANS: F REF: pg. 256

25. The general approach in sales organization cost analysis is to compare the costs incurred
versus planned costs as defined by selling budgets.

ANS: T REF: pg. 256

26. In corporate budgeting, the allocation of promotional resources to advertising represents the
total selling budget.

ANS: F REF: pg. 256

27. Profitability can be increased in the long run if expenses can be reduced by more effective or
more efficient spending.

ANS: T REF: pg. 257

28. Increases in field selling costs and extremely competitive markets have put tremendous pressure
on firm profitability.
 ANS: T REF: pg. 257

29. The effectiveness of the percentage-of-sales method depends in part on the appropriateness of
the expenditure percentages used.

ANS: T REF: pg. 257

30. The objective and task method is probably the most often used method for establishing selling budgets.

ANS: F REF: pg. 257

31. Translating budgeted and actual selling costs into percentages of sales achieved would provide
a means for assessing whether the cost/sales relationship had been maintained.

ANS: T REF: pg. 257

32. Large variations between budgeted selling costs and actual selling costs generally indicate that
the salesperson is not meeting his/her sales quota.

ANS: F REF: pg. 257

33. Sales and cost analyses are the two most direct approaches for evaluating sales
organization effectiveness.

ANS: T REF: pg 258

34. Productivity and profitability analyses are the two most direct approaches for evaluating
sales organization effectiveness.

ANS: F REF: pg. 258

35. When using income statement analysis, the different levels in a sales organization are treated
as separate businesses.

ANS: T REF: pg. 258

36. The contribution approach to income statement analysis attempts to allocate the indirect or
shared costs to individual units.

ANS: F REF: pg. 259

37. The full-cost approach to income statement analysis is more popular than the contribution
approach because firms feel that it is more objective.

ANS: F REF: pg. 259

38. Activity based costing attempts to allocate shared costs to individual units based on some type of
cost allocation procedure.

ANS: T REF: pg. 260

39. The income-statement approach to profitability does not incorporate any evaluation of the investment
 in assets required to generate the net profit or profit

contribution. ANS: T REF: pg. 260

40. It is possible for District 1 and District 2 to produce the same ROAM, but with one having a
relatively high-profit contribution percentage, the other with a relatively high asset turnover.

ANS: T REF: pg. 261

41. A low-profit contribution percentage may be the result of selling low margin products or
excessive selling expenses.

ANS: T REF: pg. 262

42. Productivity is typically measured in terms of ratios between outputs and inputs.

ANS: T REF: pg. 262

43. In productivity analysis, direct comparisons across the entire sales organization are possible
because all of the ratios are expressed in terms of the same units.

ANS: T REF: pg. 262

44. Profitability analysis takes a financial perspective, while productivity analysis is more
managerial oriented.

ANS: T REF: pg. 263

45. Productivity analysis and profitability analysis are highly interrelated.

ANS: T REF: pg. 263

46. Productivity improvements may be obtained by using more input to maintain the same level of output.

ANS: F REF: pg. 263

47. Improvements in sales productivity should be achieved by an increase in output with the same level
of input.

ANS: T REF: pg. 263