Question 1

What is Fashion Clothiers' minimum costs of ordering and holding inventory?

Accepted Answer

A)   $ 6,254
B)   $10,733
C)   $11,560
D)   $13,563E) B) and D)
F) All of the above

Question 2

Constant demand, constant carrying costs, and constant ordering costs are the three key assumptions of the EOQ model.

Accepted Answer

A) True 
 B)False

Question 3

How many orders should Aberwald place during the year?

Accepted Answer

A)   12
B)   25
C)   30
D)   40E) A) and B)
F) A) and C)

Question 4

The EOQ model minimizes total inventory costs.

Accepted Answer

A) True 
 B)False

Question 5

Providing much higher yields than operating assets, marketable securities are often held in sizable amounts.

Accepted Answer

A) True 
 B)False

Question 6

Other things held constant, which of the following will cause an increase in net operating working capital?

Accepted Answer

A)   Cash is used to buy marketable securities.
B)   A cash dividend is declared and paid.
C)   Merchandise is sold at a profit, but the sale is on credit.
D)   Missing inventory is written off against retained earnings.E) A) and C)
F) C) and D)

Question 7

What is the firm's EOQ?

Accepted Answer

A)   26,833
B)   30,040
C)   43,987
D)   13,563E) All of the above
F) B) and C)

Question 8

When sales rise, inventory as a percentage of sales may also increase even with a computerized inventory control.

Accepted Answer

A) True 
 B)False

Question 9

Float refers to the difference between the firm's available or collected balance at its bank and the firm's book or ledger balance.

Accepted Answer

A) True 
 B)False

Question 10

Now, suppose the manufacturer offers a discount of 0.5% for orders of a least 40,000 metres. Should Fashion Clothiers increase its ordering quantity to take the discount?

Accepted Answer

A)   Yes; it will save $827 if it takes the discount.
B)   No; it will lose $827 if it takes the discount.
C)   Yes; it will save $13,573 if it takes the discount.
D)   No; it will lose $13,573 if it takes the discount.E) B) and C)
F) All of the above

Question 11

The primary reason to monitor aggregate accounts receivable is to see if customers, on average, are paying more slowly.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is unlikely to be a proper investment for temporarily idle cash?

Accepted Answer

A)   Treasury bills
B)   commercial paper
C)   recently issued long-term AAA corporate bonds
D)   government bonds due within 1 yearE) All of the above
F) A) and C)

Question 13

Which of the following statements is correct?

Accepted Answer

A)   If credit sales as a percentage of a firm's total sales increases, and the volume of credit sales also increases, then the firm's accounts receivable will automatically increase.
B)   It is possible for a firm to overstate profits by offering very lenient credit terms that encourage additional sales to financially weak firms. A major disadvantage of such a policy is that it is likely to increase uncollectible accounts.
C)   Firms use seasonal dating primarily to decrease their DSO.
D)   Seasonal dating with terms 2/15, net 30 days, with April 1 dating, means that if the original sale took place on February 1, the customer can take the discount up until March 15, but must pay the net invoice amount by April 1.E) B) and C)
F) C) and D)

Question 14

When deciding whether to offer a discount for cash payment, a firm must balance the profits from additional sales with the lost revenues from the discount.

Accepted Answer

A) True 
 B)False

Question 15

A firm that makes 90% of its sales on credit and 10% for cash is currently growing at a stable, steady rate of 10% annually. This firm's accounts receivable can be kept at their current level, since the 10% cash sales can be used to support the 10% growth rate.

Accepted Answer

A) True 
 B)False

Question 16

If a firm has a large percentage of accounts over 30 days old, this is solid proof that its receivables manager is not doing a good job.

Accepted Answer

A) True 
 B)False

Question 17

Outsourcing is a practice of selling a significant percentage of intermediate components to outside suppliers from the in-house productions.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is most consistent with efficient inventory management?

Accepted Answer

A)   a high inventory turnover ratio
B)   a low incidence of production schedule disruptions
C)   a high total assets turnover
D)   a high inventory turnover ratio; a low incidence of production schedule disruptions; and a high total assets turnoverE) A) and B)
F) A) and C)

Question 19

If the lead time for placing an order is 5 days, and Aberwald holds a safety stock equal to a 30-day supply of chips, then at what inventory level should an order be placed?

Accepted Answer

A)   15,570
B)   3,175
C)   12,250
D)   13,675E) A) and B)
F) All of the above

Question 20

Since a tighter collection policy is very likely to reduce sales, such a change in policy should not be considered.

Accepted Answer

A) True 
 B)False

Exam 18: Current Asset Management

Now, suppose the manufacturer offers a discount of 0.5% for orders of a least 40,000 metres. Should Fashion Clothiers increase its ordering quantity to take the discount?

Correct AnswerverifiedShow Answer

When deciding whether to offer a discount for cash payment, a firm must balance the profits from additional sales with the lost revenues from the discount.

Correct AnswerverifiedShow Answer

What is the firm's EOQ?

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

The EOQ model minimizes total inventory costs.

Correct AnswerverifiedShow Answer

If a firm has a large percentage of accounts over 30 days old, this is solid proof that its receivables manager is not doing a good job.

Correct AnswerverifiedShow Answer

The primary reason to monitor aggregate accounts receivable is to see if customers, on average, are paying more slowly.

Correct AnswerverifiedShow Answer

When sales rise, inventory as a percentage of sales may also increase even with a computerized inventory control.

Correct AnswerverifiedShow Answer

Providing much higher yields than operating assets, marketable securities are often held in sizable amounts.

Correct AnswerverifiedShow Answer

What is Fashion Clothiers' minimum costs of ordering and holding inventory?

Correct AnswerverifiedShow Answer

Which of the following is unlikely to be a proper investment for temporarily idle cash?

Correct AnswerverifiedShow Answer

Outsourcing is a practice of selling a significant percentage of intermediate components to outside suppliers from the in-house productions.

Correct AnswerverifiedShow Answer

Which of the following is most consistent with efficient inventory management?

Correct AnswerverifiedShow Answer

Constant demand, constant carrying costs, and constant ordering costs are the three key assumptions of the EOQ model.

Correct AnswerverifiedShow Answer

Float refers to the difference between the firm's available or collected balance at its bank and the firm's book or ledger balance.

Correct AnswerverifiedShow Answer

If the lead time for placing an order is 5 days, and Aberwald holds a safety stock equal to a 30-day supply of chips, then at what inventory level should an order be placed?

Correct AnswerverifiedShow Answer

Other things held constant, which of the following will cause an increase in net operating working capital?

Correct AnswerverifiedShow Answer

How many orders should Aberwald place during the year?

Correct AnswerverifiedShow Answer

Since a tighter collection policy is very likely to reduce sales, such a change in policy should not be considered.

Correct AnswerverifiedShow Answer

A firm that makes 90% of its sales on credit and 10% for cash is currently growing at a stable, steady rate of 10% annually. This firm's accounts receivable can be kept at their current level, since the 10% cash sales can be used to support the 10% growth rate.

Correct AnswerverifiedShow Answer

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