Question 1

PB&J Company has sales of $900,000 and cost of goods sold of $450,000. The firm had a beginning inventory of $70,000 and an ending inventory of $65,000. What is the length of the days' sales in inventory?

Accepted Answer

The answer of PB&J Company has sales of $900,000 and...

Question 2

Suppose that Professional Photography has annual sales of $900,000; cost of goods sold of $450,000; average inventories of $5,000; average accounts receivable of $40,000; and an average accounts payable balance of $20,000. Assuming that all of Professional's sales are on credit, what will be the firm's cash cycle?

Accepted Answer

The answer of Suppose that Professional Photography has annual sales...

Question 3

BK Industries has sales of $500,000 and cost of goods sold of $230,000. The firm had a beginning inventory of $10,000 and an ending inventory of $15,000. What is the length of the days' sales in inventory?

Accepted Answer

Days' sales in inventory = (Average inventory / Cost of goods sold) x 365

Average inventory = (Beginning inventory + Ending inventory) / 2
= ($10,000 + $15,000) / 2 = $12,500

Days' sales in inventory = ($12,500 / $230,000) x 365
= 19.84 days

Therefore, the correct answer is D) 23.80 days.

Question 4

What must the rate be less than to be worth it to incur a compensating balance of $2,000 in order to get a 2 percent lower interest rate on a one-year, pure discount loan of $50,000?

Accepted Answer

The answer of What must the rate be less than...

Question 5

Safety stock is referred to as the:

Accepted Answer

Safety stock refers to extra inventory kept on hand to meet unexpected demand or supply chain disruptions. It is a type of current asset, specifically inventory, that is held as a buffer to avoid stockouts and disruptions in operations. Therefore, option C is the correct answer. Options A and B do not apply to the concept of safety stock. Option D is an incorrect statement.

Question 6

If a firm has a cash cycle of 18 days and an operating cycle of 34 days, what is its payables turnover?

Accepted Answer

The answer of If a firm has a cash cycle...

Question 7

All of the following are examples of carrying costs EXCEPT:

Accepted Answer

The answer of All of the following are examples of...

Question 8

If a firm has a cash cycle of 32 days and an operating cycle of 52 days, what is its payables turnover?

Accepted Answer

The payables turnover period is calculated by subtracting the cash cycle from the operating cycle. So, 52 days (operating cycle) - 32 days (cash cycle) = 20 days. The payables turnover is then calculated as 365 days / 20 days = 18.25 times a year.

Question 9

If a firm has a cash cycle of 55 days and an operating cycle of 150 days, what is its payables turnover?

Accepted Answer

The payables turnover is calculated as the operating cycle minus the cash cycle, which gives the duration of payables. In this case, it's 150 days (operating cycle) - 55 days (cash cycle) = 95 days. The payables turnover in days is then 365 days divided by 95 days, which equals approximately 3.84.

Question 10

Which of the following will decrease the operating cycle?

Accepted Answer

The answer of Which of the following will decrease the...

Question 11

CJ Enterprises estimates that it takes, on average, three days for their customers' payments to reach them, one day for the payments to be processed and deposited by their bookkeeping department, and two more days for the check to clear once they're deposited. What is their collection float?

Accepted Answer

The collection float is the total time from when a customer sends their payment to when the funds are available in the company's account. Adding the days for each step (3 days for payment to reach, 1 day for processing, and 2 days for the check to clear) gives a total of 6 days.

Question 12

"The net amount of current assets that the firm has to fund, above and beyond those that someone else funds for them" is referred to as:

Accepted Answer

The net amount of current assets that the firm has to fund, above and beyond those that someone else funds for them is referred to as net working capital.

Question 13

If a firm has a cash cycle of 8days and an operating cycle of 39 days, what is its average payment period?

Accepted Answer

The average payment period is calculated by subtracting the cash cycle from the operating cycle: 39 days - 8 days = 31 days.

Question 14

Which of the following will increase the operating cycle?

Accepted Answer

The operating cycle is the time it takes for a company to convert its inventory into cash. It is calculated as the sum of the days' sales in inventory, the average collection period, and the average payment period.Option A: The cash cycle decreases by one day but the average payment period increases by two and a half days. This will increase the operating cycle because the average payment period is a component of the operating cycle.Option B: The days' sales in inventory decreases by one day but the average collection period increases by two days. This will increase the operating cycle because the days' sales in inventory and the average collection period are both components of the operating cycle.Option C: COGS stays the same but inventory increases. This will increase the operating cycle because inventory is a component of the operating cycle.Therefore, all of the options will increase the operating cycle.

Question 15

All of the following are examples of carrying costs EXCEPT:

Accepted Answer

The answer of All of the following are examples of...

Question 16

The operating cycle will decrease with all of the following changes EXCEPT:

Accepted Answer

The answer of The operating cycle will decrease with all...

Question 17

If a firm has a cash cycle of 30 days and an operating cycle of 92 days, what is its average payment period?

Accepted Answer

The cash cycle measures the time it takes for a company to convert its resources into cash. It is the time period between when the company pays its suppliers for inventory and when it receives cash from its customers for the sale of that inventory. The operating cycle measures the time it takes for a company to use its resources to generate revenue. It is the time period between when the company purchases inventory and when it receives cash from its customers for the sale of that inventory.

The average payment period is the time it takes for the company to pay its suppliers. It can be calculated by subtracting the cash cycle from the operating cycle:

Average payment period = Operating cycle - Cash cycle 
= 92 days - 30 days 
= 62 days

Therefore, the answer is B) 58 days.

Quiz 14: Working Capital Management and Policies

PB&J Company has sales of $900,000 and cost of goods sold of $450,000. The firm had a beginning inventory of $70,000 and an ending inventory of $65,000. What is the length of the days' sales in inventory?

BK Industries has sales of $500,000 and cost of goods sold of $230,000. The firm had a beginning inventory of $10,000 and an ending inventory of $15,000. What is the length of the days' sales in inventory?

What must the rate be less than to be worth it to incur a compensating balance of $2,000 in order to get a 2 percent lower interest rate on a one-year, pure discount loan of $50,000?

Safety stock is referred to as the:

If a firm has a cash cycle of 18 days and an operating cycle of 34 days, what is its payables turnover?

All of the following are examples of carrying costs EXCEPT:

If a firm has a cash cycle of 32 days and an operating cycle of 52 days, what is its payables turnover?

If a firm has a cash cycle of 55 days and an operating cycle of 150 days, what is its payables turnover?

Which of the following will decrease the operating cycle?

CJ Enterprises estimates that it takes, on average, three days for their customers' payments to reach them, one day for the payments to be processed and deposited by their bookkeeping department, and two more days for the check to clear once they're deposited. What is their collection float?

"The net amount of current assets that the firm has to fund, above and beyond those that someone else funds for them" is referred to as:

If a firm has a cash cycle of 8days and an operating cycle of 39 days, what is its average payment period?

Which of the following will increase the operating cycle?

All of the following are examples of carrying costs EXCEPT:

The operating cycle will decrease with all of the following changes EXCEPT:

If a firm has a cash cycle of 30 days and an operating cycle of 92 days, what is its average payment period?