Preparation Manual

Domain I—Business Management, Law, and Ethics

Competency 001—Understand functions, principles, and methods of organizational management.

1. Which of the following actions by a manager best illustrates the management function of controlling?

1. delivering an inspirational speech to new employees during a company meeting
2. assessing whether short-term goals for developing a new product line have been met
3. analyzing data to help determine consumer buying trends for the next quarter
4. assigning employees to a team that will develop marketing strategies for new products

AnswerEnter to expand or collapse answer 1.Answer expanded

Option B is correct. This question requires the examinee to analyze management functions, such as planning, controlling, leading, and organizing. The management function of controlling is often defined as the process of monitoring performance and taking action to ensure desired results. Conducting an assessment to determine whether short-term goals for developing a new product line have been met is a good example of the monitoring performance aspect of this definition.

---

Competency 002—Understand principles of human resources management.

2. The human resources manager of a small software development firm is attempting to predict hiring needs for the next few years. Which of the following types of data would be most useful for accomplishing this task?

1. statistical analyses of the number of college graduates over the next few years who will have degrees in software development
2. current industry-wide figures for turnover rate and productivity for software developers
3. estimates of the number of individuals who have degrees in software development and are currently unemployed
4. projections of increases in demand for the company's products over the next few years

AnswerEnter to expand or collapse answer.Answer expanded

Option D is correct. This question requires the examinee to apply knowledge for staffing a business. Being able to accurately predict future hiring needs is an important part of staffing a business. For a small software development company, future hiring needs are most likely to be correlated with production levels. Production increases are likely to be a function of increased demand. Therefore, one way to predict future hiring needs is to project increases in demand for the company's product over the next few years.

---

Competency 003—Understand business law and issues related to ethics and social responsibility in business.

3. Which of the following is the best example of an action based on a tort?

1. An accountant is charged with embezzling money from the firm where the accountant works.
2. A supplier sues a company for breach of contract after the company cancels an order of custom-made parts.
3. A homeowner sues an appliance manufacturer after a faulty toaster causes an electrical fire.
4. A jeweler is charged with fraud after selling glass rings to customers who had paid for diamond rings.

AnswerEnter to expand or collapse answer.Answer expanded

Option C is correct. This question requires the examinee to apply basic knowledge of legal terminology. A tort is commonly defined as an intentional or unintentional wrong done by one entity (e.g., a person, a corporation) to another. Torts are adjudicated in civil courts, where the aggrieved party (the plaintiff) sues the party accused of the wrong (the defendant) for damages. Tort law is distinguished from criminal law, which pits the state against the individual accused of breaking the law. A good example of a tort is a lawsuit by an individual against a manufacturer whose product has caused the individual to be harmed.

---

Domain II—Accounting, Personal Financial Management, and Quantitative Analysis

Competency 004—Understand business accounting.

The table below shows the income statement for the Shamrock Bakery for the year ending December 31.

Shamrock Bakery Income Statement Year Ending December 31
Net Sales	blank	$375,360375,360 dollars
Cost of Goods Sold	blank	$188,325188,325 dollars
Gross Margin	blank	$187,035187,035 dollars
Operating Expenses
Selling Expenses	$59,25059,250 dollars	blank
General and Administrative Expenses	$4,4644,464 dollars	blank
Total Operating Expenses	blank	$95,71495,714 dollars
Income from Operations	blank	$91,32191,321 dollars
Other Revenue and Expenses
Interest Income	$2,4322,432 dollars	blank
Interest Expenses	$36,46436,464 dollars	blank
Excess of Other Expenses over Other Revenues	blank	$1,9261,926 dollars
Income Before Income Taxes	blank	$89,39589,395 dollars
Income Taxes	blank	$14,32314,323 dollars
Net Income	blank	$75,07275,072 dollars

4. According to the statement above, what is the approximate profit margin for the Shamrock Bakery for the past year?

1. 20%
2. 25%
3. 40%
4. 50%

AnswerEnter to expand or collapse answer.Answer expanded

Option A is correct. This question requires the examinee to apply procedures for interpreting financial statements. An income statement provides information regarding a company's net sales, income from various sources, and expenses. The profit margin of a company is defined as its net income divided by its net sales. In this case, the profit margin for Shamrock Bakery is the net income of $75,07275,072 dollars divided by net sales of $375,390375,390 dollars, or 20%.

---

Competency 005—Understand personal finance and principles of consumer economics.

5. An individual charges a total of $1,8001,800 dollars on one credit card during a one-month period. The credit card account has an APR of 16%. Which of the following represents the interest that the individual owes at the end of the month for these charges?

1.   $2424 dollars
2.   $2929 dollars
3.   $9696 dollars
4. $288288 dollars

AnswerEnter to expand or collapse answer.Answer expanded

Option A is correct. This question requires the examinee to analyze strategies for personal credit management. The monthly interest that an individual is charged on his or her credit statement can be calculated by dividing the annual percentage rate (APR) by 12 and multiplying that number by the charges on the card for that month. In this case, the APR is 16%, so the monthly interest rate is 1.33%. The charges for the month are $1,8001,800 dollars, so the interest on these charges would be .0133 × $1,800times 1,800 dollars, or approximately $24.

---

Competency 006—Understand basic techniques of computation and quantitative analysis in business.

6. A salesclerk who sells farm machinery receives a wage of $7.507 dollars and 50 cents per hour plus a commission of 1.5% of the retail value of each item that he sells. During one week, he works 36 hours and sells three pieces of machinery for $28,000, $15,000, and $33,000 28,000 dollars, 15,000 dollars, and 33,000 dollars. How much money will the salesclerk earn for that week?

1.    $870870 dollars
2. $1,1401,140 dollars
3. $1,4101,410 dollars
4. $2,7002,700 dollars

AnswerEnter to expand or collapse answer.Answer expanded

Option C is correct. This question requires the examinee to apply basic computational skills in a business context. In this question, a salesclerk is paid both by the hour and on commission. The salesclerk works 36 hours during a week at a wage of $7.507 dollars and 50 cents per hour. Therefore, the salesclerk's income for the week from this hourly wage is $7.50 × 36, or $2707 dollars and 50 cents times 36, or 270 dollars. During the week, the salesclerk sells three pieces of machinery for $28,000, $15,000, and $33,000 28,000 dollars, 15,000 dollars, and 33,000 dollars for a total of $76,00076,000 dollars in sales. The salesclerk earns a commission of 1.5% on his or her retail sales, so the commission earned for the week is .015 × $76,000, or $1,140.015 times 76,000 dollars, or 1,140 dollars. When added to the $270270 dollars in wages earned for the week, the salesclerk has earned a total of $1,4101,410 dollars.

---

Domain III—Economics and International Business

Competency 007—Understand fundamental principles of microeconomics.

The graph below shows the supply and demand curves for chicken.

The supply curve, labeled S sub 0, starts at the lower left and curves upward to the right. The demand curve, labeled D sub 0, starts at the upper left and curves downward to the right.

7. Which of the following graphs best illustrates the likely change in the supply and/or demand curves for chicken shortly after a sharp decrease in the price of fish?

1. 

2. 

3. 

4. 

AnswerEnter to expand or collapse answer.Answer expanded

Option C is correct. This question requires the examinee to apply concepts related to business economics, such as supply and demand. Supply and demand curves illustrate how demand for the item and the supply of the item affect the item's price. As demand increases for an item, price will also increase, and the demand curve will move to the right. As demand decreases, price will decrease, and the demand curve will move to the left. The price for a particular item may also be sensitive to the supply and demand of a related item. In this case, a sharp decrease in the price of fish is likely to increase the demand for fish. Since fish often competes with chicken for a place at the family dinner table, the increased demand for fish should lead to decreased demand for chicken, which will lead to a reduction in the price of chicken and movement of the demand curve to the left.

---

Competency 008—Understand fundamental principles of macroeconomics.

8. The Federal Reserve Board would be most likely to recommend a series of interest rate cuts in order to help accomplish which of the following goals?

1. bringing the economy out of a recession
2. preventing devaluation of the dollar
3. slowing down a too-rapid expansion of the economy
4. reducing inflation

AnswerEnter to expand or collapse answer.Answer expanded

Option A is correct. This question requires the examinee to analyze government monetary policy. The Federal Reserve Board uses its power to set certain interest rates to affect the rate of economic growth and the rate of inflation. By reducing interest rates, the Federal Reserve makes it easier for both businesses and consumers to borrow money. Easy credit allows businesses to expand, production to increase, and more workers to be hired, thus initiating the growth phase of the business cycle and helping to bring the national economy out of recession.

---

Competency 009—Understand international business, marketing, and trade.

9. Which of the following changes in the U.S. economy would most likely lead to a decrease in exports from the United States to other countries?

1. a rise in the value of the U.S. dollar relative to other currencies
2. an increase in the productivity of U.S. workers
3. a decrease in the unemployment rate of U.S. workers
4. a reduction in short-term interest rates charged by U.S. banks

AnswerEnter to expand or collapse answer.Answer expanded

Option A is correct. This question requires the examinee to analyze factors that affect international trade and the economy of the United States. One important factor that helps determine the success of a nation in exporting its goods and services is the price of those goods and services in other countries. Many factors influence the prices of a nation's goods and services, including the value of the nation's currency relative to the currencies of other nations. A rise in the value of the U.S. dollar relative to the European euro, for example, would lead to higher prices for U.S. goods and services on European markets. Demand for U.S. goods and services in Europe would fall and the amount of U.S. exports to Europe would decrease.

---

Domain IV—Marketing, E-Commerce, and Entrepreneurship

Competency 010—Understand basic principles of marketing, marketing research, and product/service planning and placement.

10. At which of the following stages in the product life cycle would a marketing strategy of differentiating the product by producing related product lines be most advantageous?

1. Introduction
2. Growth
3. Maturity
4. Decline

AnswerEnter to expand or collapse answer.Answer expanded

Option C is correct. This question requires the examinee to analyze the product life cycle and strategies for determining the product mix. Differentiating a product by producing related product lines is most advantageous during the Maturity phase of a product's life cycle. During the Maturity phase, the product is well established, but sales are no longer increasing and will likely begin to decline as competing products capture a larger share of the market. Differentiating the product breaks up the target market for the product into a number of smaller niche markets, each with its own, more narrowly targeted, product. Although sales of each element of the product line will likely be less than those of the original product, the line of related products as a group may enter a new period of sales growth.

---

Competency 011—Understand principles and procedures related to e-commerce and Internet marketing.

11. Which of the following best describes one use of e-commerce for one-to-one marketing?

1. Banner ads for health supplements appear on the pages of a Web site that deals with fitness and health issues.
2. Users logging on to a store's Web site are greeted by product recommendations based on previous purchases from that store.
3. Several companies that sell different products to the same target audience place links to one another's Web sites on their own Web sites.
4. E-mails advertising a sale at a regional department store chain are sent to people living in the store's geographical region.

AnswerEnter to expand or collapse answer.Answer expanded

Option B is correct. This question requires the examinee to demonstrate knowledge of types of e-commerce. E-commerce marketing efforts may target very wide audiences (e.g., pop-ups) or very narrow audiences (e.g., narrowly targeted e-mails). Internet technology allows a company to collect data about a customer's purchases from a Web site and analyze those purchases to develop a profile of the customer's preferences. The company can use this profile to suggest products that the customer might be interested in when he or she logs on to the site in the future. This is an example of extremely narrow, essentially one-to-one marketing, where a company's marketing message is tailored to fit each customer's demonstrated preferences.

---

Competency 012—Understand entrepreneurship and business plan development.

12. Which of the following best describes one role of venture capitalists in U.S. business?

1. providing funds to start up new businesses
2. serving as intermediaries between buyers and sellers of stocks
3. purchasing assets of bankrupt companies
4. providing short-term loans to established businesses

AnswerEnter to expand or collapse answer.Answer expanded

Option A is correct. This question requires the examinee to analyze factors and issues related to starting a new business. Starting a new business requires access to sufficient capital to get the business off the ground and offset expected losses until the business is well established. Unless the entrepreneur uses personal capital, he or she will have to approach other individuals, banks, or other lending institutions for funds. Unlike banks, venture capitalists provide capital to start a business in return for a stake in the business, rather than for a guaranteed return in the form of interest on a loan.

---

Domain V—Business Communications, Technology, Career Development, and Professionalism

Competency 013—Understand principles and procedures related to business communication.

13. In which of the following situations would it be most important for participants to communicate in a face-to-face meeting?

1. A manager wishes to inform a subordinate of topics that will be discussed at an upcoming meeting.
2. An entrepreneur wishes to persuade a potential investor to back a business start-up.
3. A team leader wishes to inform members of the team about specifications for an assigned task.
4. A human resources director wishes to persuade employees to use company e-mail solely for business purposes.

AnswerEnter to expand or collapse answer.Answer expanded

Option B is correct. This question requires the examinee to demonstrate knowledge of effective communication skills in professional situations. Face-to-face communication allows each participant to send and receive both verbal messages and nonverbal messages in the form of body language, facial expressions, and gestures. Compared with other forms of communication (e.g., writing, telephone) face-to-face communication allows greater amounts and more subtle types of information to be sent and received. This makes face-to-face communication especially useful during interactions in which the information exchanged is complex or nuanced, as in persuading a potential investor to back a business start-up.

---

Competency 014—Understand information systems in business.

14. A business is looking for a commercial Internet server to host its Web site. It is most likely to need a server offering SQL capabilities if it intends to offer its Web site users:

1. video streaming.
2. database access.
3. site searches.
4. interactive forms.

AnswerEnter to expand or collapse answer.Answer expanded

Option B is correct. This question requires the examinee to apply knowledge of how to use the Internet. Structured Query Language (SQL) is a computer language for inserting, retrieving, modifying, updating and deleting data from databases. A business Web site would need a server that offers SQL capabilities if it intends to offer visitors to the Web site access to databases.

---

Competency 015—Understand information processing and computer technology applications in business.

An incomplete spreadsheet for a business is shown below.

Rows 1 through 3 contain headers that say, in order from 1 to 3, "Ahead Financial Services," "Balance Sheet," and "March 31." In subsequent rows, some cells contain text or numbers as follows: Cell A 4, Assets. Cell A 5, Total current assets. Cell B 5 250,000. Cell A 6, Fixed assets. Cell B 6, 125,000. Cell A 7, Intangible assets. Cell B 7, 15,000. Cell A 9, Total assets. Cell A 11, Liabilities. Cell A 12, Current liabilities. Cell B 12, 175,000. Cell A 13, Long-term liabilities. Cell B 13, 125,000. Cell A 15, Total liabilities. Cell C 15, 300,000. Cell A 17, Owner's Equity. Cell A 18, Common stock, cell B 18, 50,000. Cell A 19, Retained earnings, cell B 19, 40,000. Cell A 21, Total equity. Cell C 21, 90,000. Additionally, cell C 9 in the Total assets row is blank with a dark border around it.

15. What formula should be inserted in cell C9?

1. B5 + B12
2. SUM(B5:B7)
3. B15 + B21
4. SUM(C15:C21)

AnswerEnter to expand or collapse answer.Answer expanded

Option B is correct. This question requires the examinee to apply knowledge of principles and procedures related to software applications used for information processing. A spreadsheet is a computer application that consists of a grid of cells that may contain alphanumeric text, as in column A of the spreadsheet shown, or numerals, as in columns B and C. A spreadsheet cell may also contain a formula that specifies how the content of that cell is to be calculated from the contents of other cells. In the spreadsheet shown, column C of the balance sheet represents the total of each of the categories (assets, liabilities, owner's equity) of the balance sheet. The highlighted cell represents total assets, and the formula for calculating the cell's content would be SUM(B5:B7).

---

Competency 016—Understand career development and professionalism.

16. Which of the following steps should a person take first when choosing a career?

1. assessing short and long-term prospects for employment in various fields
2. identifying one's own personal characteristics and career objectives
3. reviewing strategies for writing an effective résumé and application letter
4. gathering information about academic requirements for various professions

AnswerEnter to expand or collapse answer.Answer expanded

Option B is correct. This question requires the examinee to apply knowledge of career-planning strategies and skills related to job search and job acquisition. A primary objective of the career-planning process is to identify potential careers that match the individual's goals, values, and personal strengths. This requires both a knowledge of the characteristics of a variety of careers and a knowledge of one's own personal characteristics. Since the number of potential careers is extremely large, it is most efficient to begin this process by identifying one's own personal characteristics and career objectives and then matching these characteristics and objectives with characteristics of particular careers.

---