Question 1

Using the following financial statement information,
 the accounts receivable turnover ratio is closest to:

Accepted Answer

The answer of Using the following financial statement information,
 the...

Question 2

Using the following financial statement information,
 The days sales outstanding, assuming all sales are on credit, is closest to:

Accepted Answer

The answer of Using the following financial statement information,
 The...

Question 3

Using the following financial statement information,
 the inventory turnover ratio is closest to:

Accepted Answer

The answer of Using the following financial statement information,
 the...

Question 4

Using the following financial statement information,
 the days sales in inventory is closest to:

Accepted Answer

The answer of Using the following financial statement information,
 the...

Question 5

Using the following financial statement information,
 the accounts payable turnover, assuming that beginning inventory is equal to ending inventory, is closest to:

Accepted Answer

The answer of Using the following financial statement information,
 the...

Question 6

Using the following financial statement information,
 the days payables outstanding is closest to:

Accepted Answer

The answer of Using the following financial statement information,
 the...

Question 7

Using the following financial statement information,
 the operating cycle is closest to:

Accepted Answer

The answer of Using the following financial statement information,
 the...

Question 8

Using the following financial statement information,
 the cash conversion cycle (CCC), assuming all sales on credit and assuming that beginning inventory is equal to ending inventory, is closest to:

Accepted Answer

The answer of Using the following financial statement information,
 the...

Question 9

The reason for holding cash required for a company's normal operations is best described as:

Accepted Answer

The transactions motive explains why companies hold cash for normal operations, as it allows them to cover day-to-day transactions without the need to constantly sell assets or secure financing.

Question 10

The reason that companies keep cash on hand to take care of unanticipated required outlays, such as unexpected repairs on equipment is best described as:

Accepted Answer

The precautionary motive for holding cash refers to the need for companies to have liquid assets available to meet unexpected expenses, such as emergency repairs. This ensures that the company can cover unforeseen costs without having to secure external financing on short notice.

Question 11

The reason that companies will accumulate cash in anticipation of any major outlays, such as lump-sum loan repayments or dividend payments is best described as:

Accepted Answer

The answer of The reason that companies will accumulate cash...

Question 12

The fact that companies may keep extra cash available to take advantage of unexpected "bargains", such as the opportunity to purchase raw materials very cheaply is best described as:

Accepted Answer

The speculative motive refers to holding cash to take advantage of potential short-term opportunities, such as purchasing raw materials at a lower cost than usual. This allows companies to potentially increase their profits by speculating on future market conditions.

Question 13

Which of the following is not one of the four C's of credit?

Accepted Answer

The four C's of credit are Capacity, Capital, Collateral, and Character. "Cost" is not one of the four C's of credit.

Question 14

A company is considering the purchase of one of its inputs from supplier A. The credit terms are 1.5/10 net 30. What is the effective annual cost of forgoing the discount and paying on day 30?

Accepted Answer

The effective annual cost of forgoing the discount can be calculated using the formula for the cost of not taking the trade discount: $$ \text{Cost} = \left( \frac{\text{Discount \%}}{100\% - \text{Discount \%}} \right) \times \left( \frac{360}{\text{Days in payment period} - \text{Discount period}} \right) $$ Here, the discount is 1.5%, so the discount period is 10 days, and the full payment period is 30 days. Plugging these values into the formula gives: $$ \text{Cost} = \left( \frac{1.5}{100 - 1.5} \right) \times \left( \frac{360}{30 - 10} \right) = \left( \frac{1.5}{98.5} \right) \times 18 = 0.015228 \times 18 = 0.2741 $$ or 27.41% on a per period basis. However, since the period in question is 20 days (from day 10 to day 30), we need to annualize this rate to find the effective annual rate (EAR). The formula for EAR based on a non-annual rate is: $$ \text{EAR} = \left(1 + \text{periodic rate}\right)^{\frac{365}{\text{days in period}}} - 1 $$ Substituting the periodic rate and the days in period gives: $$ \text{EAR} = \left(1 + 0.2741\right)^{\frac{365}{20}} - 1 \approx 31.76\% $$ Therefore, the effective annual cost of forgoing the discount and paying on day 30 is approximately 31.76%.

Question 15

A company is considering the purchase of one of its inputs from supplier A. The credit terms are 2/10 net 30. What is the effective annual cost of forgoing the discount and paying on day 30?

Accepted Answer

The effective annual cost of forgoing the discount can be calculated using the formula for the cost of not taking the trade discount: $$ \text{Cost} = \left( \frac{\text{Discount \%}}{100\% - \text{Discount \%}} \right) \times \left( \frac{360}{\text{Days beyond discount period}} \right) $$ Here, the discount is 2%, so not taking the discount means paying 98% of the invoice. The discount period is 10 days, and the net period is 30 days, so the days beyond the discount period are 20 days. Plugging these values into the formula gives: $$ \text{Cost} = \left( \frac{2\%}{98\%} \right) \times \left( \frac{360}{20} \right) = \left( \frac{0.02}{0.98} \right) \times 18 = 0.020408 \times 18 = 0.367346 $$ Converting this to a percentage gives an effective annual cost of 36.73%, which is not one of the options provided. However, the correct calculation should be: $$ \text{Cost} = \left( \frac{2\%}{100\% - 2\%} \right) \times \left( \frac{360}{30 - 10} \right) = \left( \frac{0.02}{0.98} \right) \times 18 = 0.020408 \times 18 = 36.73469388\% $$ The correct calculation actually involves recognizing that the formula should yield an annualized rate, and the correct approach involves compounding the effect of the discount over the entire year. The correct formula application is: $$ \text{Cost} = \left(1 + \frac{0.02}{0.98}\right)^{\frac{360}{20}} - 1 $$ This calculation correctly yields an answer closer to the options provided, specifically option B, 44.59%. The initial explanation mistakenly did not apply the formula for annualizing the rate correctly, leading to a confusion in the final answer. The correct approach involves understanding the compounding effect of forgoing the discount over the entire year, which significantly increases the cost.

Question 16

Which of the following inventory management approaches attempts to find the optimal inventory level that minimizes the total of shortage and carrying costs?

Accepted Answer

The Economic Order Quantity (EOQ) Model is designed to help find the ideal order quantity that minimizes the total costs associated with ordering, receiving, and holding inventory. This includes both the costs of carrying inventory and the costs related to shortages or not having enough inventory on hand.

Question 17

Which of the following inventory management systems works in conjunction with production schedules to determine the exact level of raw materials and work-in-process that must be on hand to meet finished goods demand?

Accepted Answer

Material Requirement Planning (MRP) is designed to meet production schedules by determining the precise amount of materials and work-in-process inventory needed to match finished goods demand. It integrates production planning and inventory control to ensure that materials are available for production and products are available for delivery to customers, minimizing inventory levels at the same time.

Question 18

Which of the following inventory management systems fine-tunes the receipt of raw materials so that they arrive exactly when they are required in the production process?

Accepted Answer

The Just-in-time (JIT) inventory system is designed to ensure that raw materials and components are delivered to the production process exactly at the time they are needed, minimizing inventory costs and reducing waste.

Question 19

Which of the following inventory management approaches attempts to divide inventory into several categories based on the value of the inventory items, their overall level of importance to the company's operations, and their profitability?

Accepted Answer

The ABC Approach categorizes inventory into three classes (A, B, and C) based on their importance and value to the company, with A being the most valuable and C being the least. This method helps in prioritizing inventory management efforts and resources.

Question 20

A company orders 240,000 windows per year. Every time a company orders windows from its suppliers, the supplier charges $1,000 in shipping and handling. The cost of keeping windows on hand, in terms of storage and maintenance costs, is $.25 per window. What quantity of windows should the company order?

Accepted Answer

The optimal order quantity can be determined using the Economic Order Quantity (EOQ) formula: EOQ = sqrt((2DS)/H), where D is the demand (240,000 windows), S is the ordering cost ($1,000), and H is the holding cost per unit ($.25). Plugging in the values: EOQ = sqrt((2*240,000*1,000)/.25) = sqrt(1,920,000,000) ≈ 43,818. This makes option C the correct answer.

Quiz 19: Working Capital Management

Using the following financial statement information, the accounts receivable turnover ratio is closest to:

Using the following financial statement information, The days sales outstanding, assuming all sales are on credit, is closest to:

Using the following financial statement information, the inventory turnover ratio is closest to:

Using the following financial statement information, the days sales in inventory is closest to:

Using the following financial statement information, the accounts payable turnover, assuming that beginning inventory is equal to ending inventory, is closest to:

Using the following financial statement information, the days payables outstanding is closest to:

Using the following financial statement information, the operating cycle is closest to:

Using the following financial statement information, the cash conversion cycle (CCC) , assuming all sales on credit and assuming that beginning inventory is equal to ending inventory, is closest to:

The reason for holding cash required for a company's normal operations is best described as:

The reason that companies keep cash on hand to take care of unanticipated required outlays, such as unexpected repairs on equipment is best described as:

The reason that companies will accumulate cash in anticipation of any major outlays, such as lump-sum loan repayments or dividend payments is best described as:

The fact that companies may keep extra cash available to take advantage of unexpected "bargains", such as the opportunity to purchase raw materials very cheaply is best described as:

Which of the following is not one of the four C's of credit?

A company is considering the purchase of one of its inputs from supplier A. The credit terms are 1.5/10 net 30. What is the effective annual cost of forgoing the discount and paying on day 30?

A company is considering the purchase of one of its inputs from supplier A. The credit terms are 2/10 net 30. What is the effective annual cost of forgoing the discount and paying on day 30?

Which of the following inventory management approaches attempts to find the optimal inventory level that minimizes the total of shortage and carrying costs?

Which of the following inventory management systems works in conjunction with production schedules to determine the exact level of raw materials and work-in-process that must be on hand to meet finished goods demand?

Which of the following inventory management systems fine-tunes the receipt of raw materials so that they arrive exactly when they are required in the production process?

Which of the following inventory management approaches attempts to divide inventory into several categories based on the value of the inventory items, their overall level of importance to the company's operations, and their profitability?