Deck 16: Assets: Inventory and Operations Management

Question 1

The primary advantage of ROI is that it focuses on the time value of money.

Answer 1

False

Question 2

Cost of owning an asset includes cost incurred in financing,insuring,taxing,or tracking an asset.

Answer 2

True

Question 3

The main drawback of using periodic inventory systems is the high cost in time needed for constant record keeping.

Answer 3

False

Question 4

The ultimate extension of pull-through processing is just-in-time inventory management.

Question 5

The total cost of keeping inventory is the sum of the cost of buying it,the cost of keeping it on hand,and the cost of ordering more.

Question 6

There are two basic types of leases: operating leases and capital leases.

Question 7

Replacement value is an accounting term that describes the difference between the original acquisition cost of capital assets and the amount of depreciation expense that has been recognized for them.

Question 8

The primary advantage of replacement value is that you can be quite confident of its accuracy.

Question 9

The two most commonly used financial ratios for comparing investment alternatives are payback period and return on sales.

Question 10

The cost of owning and holding inventory is far greater than the cost of ordering inventory.

Question 11

One of the policies for managing customer credit requires business owners to maintain constant "aging" of accounts to quickly identify customers who become delinquent.

Question 12

Given the high cost of keeping and counting inventory,most small businesses use the perpetual inventory method.

Question 13

Providing customer credit usually results in increased sales revenues and lowered transaction costs.

Question 14

In the POS systems,every sale is immediately recorded in the accounting system.

Question 15

Potential buyers and investors are most interested in the book value of the asset since it represents the real cost of that asset.

Question 16

The value of operating assets is a function of their utility.

Question 17

When you factor receivables,you get about 50 percent of the amount due,where as,when you pledge receivables,you immediately get 75 to 80 percent of the amount due.

Question 18

Given the high interest rate charges,current practice is for small businesses to provide direct credit to customers.

Question 19

Accounts receivable are the largest current asset that most manufacturing,wholesale,and retail firms have.

Question 20

EOQ is also known as the reorder point.

Question 21

All of these are primary inventories of manufacturing EXCEPT

A)raw material.
B)work in process.
C)finished goods.
D)presold goods.

Question 22

_____ is money that is owed to your business by your customers.

A)Inventory
B)Accounts receivable
C)Factor receivables
D)Accounts payable

Question 23

The practice of purchasing and accepting delivery of inventory only after it has been sold to the final customer is called a(n)_____ inventory system.

A)EOQ
B)periodic
C)JIT
D)perpetual

Question 24

Which of these also refers to reorder point?

A)Microinventory
B)JIT
C)Optimum stocking level
D)EOQ

Question 25

EOQ helps you think in terms of

A)buying and selling.
B)ordering costs and carrying costs.
C)borrowing cost and kiting costs.
D)ordering cost and lost sales.

Question 26

Pledging receivables will get you about _____ of the amount that can be collected,where as,factoring can get you _____ percent of the amount due.

A)one-fourth;90-95
B)one-fifth;40-45
C)one-half;75-80
D)three-fourth;20-25

Question 27

Products that are held for sale to customers are called:

A)inventory.
B)layaways.
C)accounts receivable.
D)equipments.

Question 28

What is the difference between the gross amount of the receivables and the amount that is ultimately collected?

A)Factor's profit margin
B)Lock box
C)Profit maximization
D)Commission

Question 29

Which of these is the largest current asset that most manufacturing,wholesale,and retail firms have?

A)Cash
B)Property,plant,and equipment
C)Accounts receivable
D)Inventory

Question 30

Which of these represents the current practice for small businesses to provide credit?

A)Providing credit by accepting bank-issued credit cards.
B)Providing no credit.
C)Providing direct credit to customers to build loyalty.
D)Providing credit only when approved and backed by government agencies.

Question 31

All of these are negative effects of extending credit to customers EXCEPT:

A)it delays the receipt of cash.
B)it creates a borrowing situation for the owners of the business providing credit.
C)some customers with credit will not pay.
D)it increases the cost of selling.

Question 32

Which of these is NOT a recommended policy for managing accounts receivable?

A)Maintaining constant "aging" of customers to quickly identify the ones who may become delinquent.
B)Using your bank as a lock box for the receipt of payments.
C)Enforcing significant late fees and interest on past due accounts.
D)Discontinuing credit sales to customers who become significantly late in paying.

Question 33

Giving a third party legal rights to debts owed your business in order to provide assurance that borrowed money will be repaid refers to:

A)pledging receivable.
B)factoring.
C)EOQ.
D)JIT inventory.

Question 34

In practice,managers of small businesses tend to use which of these when it comes to inventory?

A)Heuristic
B)EOQ
C)Statistical analysis
D)JIT analysis

Question 35

Selling the right to collect accounts receivable to an entity outside your business is called:

A)pledging receivable.
B)factoring.
C)EOQ.
D)JIT inventory.

Question 36

Which of these is true about providing credit?

A)It usually results in lower sales revenues.
B)It accelerates the receipt of cash.
C)It reduces the cost of selling.
D)It forces all the customers to pay.

Question 37

JIT inventory system attempts to reduce inventory levels to the absolute minimum by all of the following EXCEPT:

A)accepting inventory only as it is sold.
B)assembling product in the absolute minimum time possible.
C)keeping safety stock in case sales might be greater than forecast.
D)shipping product to the customer immediately upon completion.

Question 38

Which of the following is a statistical technique that determines the quantity of inventory that a business must hold to minimize total inventory cost?

A)JIT
B)EOQ
C)Reorder point
D)Microinventory

Question 39

The practice of acquiring inventory only in response to a completed sale is called a(n):

A)economic order quantity.
B)pull-through system.
C)periodic inventory.
D)perpetual inventory.

Question 40

The _____ is the amount of inventory that results in the minimum cost,considering the cost of lost sales resulting from running out of stock,the number of units sold per day,and the number of days required to receive inventory.

A)microinventory
B)periodic inventory
C)EOQ
D)optimum stocking level

Question 41

Laws,regulations,and the requirements of GAAP require that _____ value be used for financial reporting and income tax purposes.

A)book
B)fair market
C)replacement
D)disposal

Question 42

_____ comprises both hardware and software to integrate inventory management directly into your accounting system.

A)Microinventory
B)Point-of-sale system
C)Periodic inventory
D)Perpetual inventory

Question 43

What is an arbitrary,but regular and systematic method used to take an asset value as an expense for the purpose of calculating net income or loss?

A)Book value
B)Depreciation
C)Arm's length transaction
D)Disposal value

Question 44

A system of recording the receipt and sale of each item as it occurs is called:

A)microinventory.
B)periodic inventory.
C)point-of-sale system.
D)perpetual inventory.

Question 45

_____ is one method used to reduce the cost of perpetual inventory system.

A)Bar coding
B)Periodic inventory
C)Microinventory
D)JIT

Question 46

The process of physically counting business assets on a set schedule is called:

A)microinventory.
B)periodic inventory.
C)point-of-sale system.
D)perpetual inventory.

Question 47

The price at which goods and services are bought and sold between willing sellers and buyers in an arm's-length transaction is called:

A)book value.
B)disposal value.
C)fair market value.
D)replacement value.

Question 48

Which of the following is not generally considered to be very useful for any purpose other than accounting and income taxes?

A)Replacement value
B)Salvage value
C)Book value
D)Disposal value

Question 49

Identify the term used for an asset with a fixed determinable period of utility.

A)Useful life
B)Salvage value
C)Book value
D)Disposal value

Question 50

The purchase of inventory,very typical with Internet firms,only after a sale is made is called:

A)microinventory.
B)periodic inventory.
C)perpetual inventory.
D)point-of-sale system.

Question 51

Which of these is NOT an accounting method to value capital assets?

A)Disposal value
B)Book value
C)Replacement value
D)Inflation value

Question 52

_____ is an accounting term that describes the difference between the original acquisition cost of capital assets and the amount of depreciation expense that has been recognized for them.

A)Book value
B)Disposal value
C)Fair market value
D)Replacement value

Question 53

The primary advantage of replacement value is:

A)accuracy.
B)high cost.
C)low taxes.
D)low cost.

Question 54

Assets that are expected to provide economic benefits for periods of time greater than one year are called:

A)accounts receivable.
B)short-term investments.
C)capital assets.
D)cash and cash equivalent assets.

Question 55

_____ is the fixed and determinable value of an asset that will exist when the depreciation process is complete.

A)Useful life
B)Salvage value
C)Book value
D)Disposal value

Question 56

Depreciation is based on all of the following assumptions EXCEPT

A)that the asset has a fixed,determinable period of utility.
B)that the asset has a fixed,determinable value that will exist when the depreciation process is complete.
C)that the value of the asset will decline in a continuous and predictable manner over the period of utility.
D)that it is the cost incurred to replace one asset with an identical asset.

Question 57

This method defines utility as being the net cash inflows that the asset will produce.

A)Future cash flow valuation
B)Investment cash flow valuation
C)Financing cash flow valuation
D)Discounted cash flow valuation

Question 58

Capital assets are otherwise known as:

A)operating assets.
B)inventory.
C)intangible assets.
D)current assets.

Question 59

For periodic inventory,the time between counts is usually:

A)one quarter.
B)six months.
C)one business year.
D)30 days.

Question 60

_____ is a method of estimating asset value by calculating the net amount that you would realize were you to sell the asset in an "arm's-length" transaction.

A)Book value
B)Disposal value
C)Fair market value
D)Replacement value

Question 61

What is the cost incurred in financing,insuring,taxing,or tracking an asset?

A)Cost of owning
B)Whole of life costs
C)Cost of operating
D)Cost of disposition

Question 62

Cost incurred in the activities necessary to get rid of an asset is called:

A)whole of life costs.
B)cost of disposition.
C)cost of owning.
D)cost of operation.

Question 63

Under this type of arrangement,a small business may buy only that share that it can reasonably use during the course of business.

A)Partnership
B)Fractional ownership
C)Joint Ventures
D)Limited company

Question 64

A capital budgeting equation used to measure the relationship between initial investment and the profits that are expected to be received from making the investment is called:

A)ROI.
B)return on sales.
C)current ratio.
D)NPV.

Question 65

Operational control depends on all of the following types of feedback EXCEPT:

A)informational feedback.
B)corrective feedback.
C)interpretive feedback.
D)reinforcing feedback.

Question 66

All of the following are the disadvantages to rental EXCEPT:

A)it requires that you make regular payments.
B)the number of dollars paid in rent usually exceeds the number of dollars you would spend to own the asset.
C)by renting capital equipment you incur ongoing costs if business conditions change.
D)you do not have an ownership position.

Question 67

A general term for real estate,but that can also be applied as a legal term for anything owned or possessed is called:

A)property.
B)plant.
C)equipment.
D)inventory.

Question 68

The amount of time it takes a business to earn back the funds it paid out to obtain a capital asset is called:

A)return on sales.
B)net profit margin.
C)ROI.
D)payback period.

Question 69

The sum of all costs of capital assets including acquisition,ownership,operation,and disposal refers to:

A)cost of operation.
B)cost of owning.
C)whole of life cost.
D)replacement cost.

Question 70

A general term for the facilities of a business is called:

A)property.
B)plant.
C)equipment.
D)inventory.

Question 71

The primary disadvantage of the payback period is that:

A)it disregards the time value of money.
B)it is highly complex.
C)it does not allow the comparisons of alternatives.
D)it incorporates all cash flows that occur after the payback period.

Question 72

Which of the following is not a benefit of leasing?

A)You can usually obtain a very low down payment.
B)The process of negotiating and closing a lease is usually less complicated and expensive than making a purchase and obtaining borrowed funds.
C)It is usually much easier for you to replace leased assets than it is to replace assets you own.
D)Leased assets have less number of restrictions on how they may be used,maintained,and disposed of.

Question 73

_____ refers to the process of deciding among various investment opportunities to create a specific spending plan.

A)ROI
B)Payback period
C)Capital budgeting
D)Return on asset

Question 74

Potential buyers and investors are most interested in _____ value of your assets.

A)book
B)fair market
C)replacement
D)disposal

Question 75

Renting capital assets provides all of these advantages EXCEPT:

A)it requires little or no cash investment.
B)it does not require extensive paperwork.
C)it protects you from unexpected repairs.
D)it usually results in higher sales revenues due to repeat business.

Question 76

A lease in which at the end of the lease period the asset becomes the property of the lessee,possibly with an additional payment is called a(n):

A)operating lease.
B)short-term lease.
C)reverse lease.
D)capital lease.

Question 77

The direct cost incurred in using an asset for the purpose for which it was intended is called:

A)cost of disposition.
B)cost of owning.
C)whole of life cost.
D)cost of operating.

Question 78

If you are offering assets as collateral,lenders are most interested in _____ value.

A)book
B)fair market
C)replacement
D)disposal

Question 79

The two most commonly used financial ratios for comparing investment alternatives are:

A)current and quick ratios.
B)return on sales and return on investment.
C)operating profit margin and net profit margin.
D)payback period and ROI.

Question 80

The primary disadvantage of leasing is that:

A)it usually costs more than would purchasing.
B)assets tend to have more breakdowns.
C)it requires extensive paperwork than would purchasing.
D)it generates fewer dollars in revenue sales.