Question 1

Just-in-time inventory systems can leave manufacturers empty handed if suppliers can't keep up with product growth rates.

Accepted Answer

Just-in-time inventory systems rely on suppliers providing materials or products in a timely manner in response to customer demand. If suppliers can't keep up with the rate of growth, manufacturers may not have enough inventory to meet demand and may be left empty handed.

Question 2

The economic order quantity helps a firm determine the most efficient order size to place.

Accepted Answer

The economic order quantity (EOQ) formula is used to determine the most efficient order size for a firm to minimize the total cost of ordering and holding inventory. Therefore, the statement is true.

Question 3

A reduction in carrying costs would increase the economic order quantity.

Accepted Answer

Economic order quantity is directly influenced by carrying costs. A reduction in carrying costs will reduce the total cost of carrying inventory, leading to an increase in the economic order quantity.

Question 4

If a firm averages $2,000 in daily credit sales and offers 60-day terms, the average accounts receivable balance will be $120,000.
Avg. A/R = Daily credit sales x credit terms
$120,000 = $2,000 x 60 days

Accepted Answer

The formula for calculating average accounts receivable is correct and results in an average balance of $120,000, making the statement true.

Question 5

When a potential customer has a mediocre credit history, a firm should not consider allowing them to become a customer.

Accepted Answer

A firm should consider other factors such as income, employment stability, and previous payment history before making a decision about allowing a potential customer with a mediocre credit history to become a customer. It is possible that they may still be a profitable and reliable customer for the firm.

Question 6

When selecting marketable securities, the company should always select securities with longer maturities if they offer higher yields.

Accepted Answer

It is not always advisable to solely focus on yield when selecting marketable securities. Longer maturities come with higher interest rate risk, and the company should also consider factors such as credit risk and liquidity when making investment decisions.

Question 7

The two basic costs associated with inventory are production cost and ordering cost.

Accepted Answer

The two basic costs associated with inventory are holding or carrying cost and ordering cost. Production cost may be included in holding cost, but it is not a separate cost category.

Question 8

If we assume that inventory is used up at a constant rate and safety stock is zero, the average inventory will be 1/2 the order size.

Accepted Answer

This is a common inventory management assumption and is known as the "basic EOQ model" (economic order quantity model). In this model, the average inventory level is equal to half the order quantity.

Question 9

Return on investment is the major decision criteria in credit decisions.

Accepted Answer

The answer of Return on investment is the major decision...

Question 10

If a company would like to reduce their average collection period, they can either reduce offer a cash discount or increase their net terms.

Accepted Answer

Offering a cash discount can reduce the average collection period by encouraging quicker payments, but increasing net terms would extend the time customers have to pay, potentially increasing the collection period.

Question 11

Because of changing economic conditions, it is difficult for companies such as Dun & Bradstreet to devise models predicting payment problems and probability of bankruptcy 12 months in the future.

Accepted Answer

The answer of Because of changing economic conditions, it is...

Question 12

Seasonal production allows for maximum efficiency in machinery and manpower use.

Accepted Answer

Seasonal production often leads to periods of inactivity and underutilization of machinery and manpower, as production is not consistent throughout the year.

Question 13

Finding out who is ultimately responsible for a bad debt can be helped by Dun & Bradstreet's D-U-N-S (Data Universal Numbers System) that tracks relationships and ownership of businesses within Dun & Bradstreet's information base.

Accepted Answer

Dun & Bradstreet's D-U-N-S system does track relationships and ownership of businesses, which can help identify who is ultimately responsible for a bad debt.

Question 14

Maintaining a safety stock will guard against an EOQ from occurring.

Accepted Answer

Maintaining a safety stock is a way to buffer against uncertainty in demand and lead time variability. It is not intended to prevent an EOQ (economic order quantity) from occurring as EOQ is a calculation that determines the optimal order quantity to minimize total inventory costs.

Question 15

The use of "float" has dramatically increased since the Check Clearing for the 21^st Century Act was passed.

Accepted Answer

The Check Clearing for the 21st Century Act (also known as Check 21) did not impact the use of "float." The act instead allowed banks to create electronic images of paper checks, which reduced the amount of time it took for checks to clear.

Question 16

When considering offering a cash discount, a firm must weigh the benefits of freed up cash with the cost of the cash discount.

Accepted Answer

When offering a cash discount, the firm must consider the benefits of receiving payment earlier and freeing up cash sooner, but also weigh the cost of the discount offered against the potential profit lost.

Question 17

Inventories are usually the most liquid, but lowest-yielding, current asset of a firm.

Accepted Answer

Inventories are not always the most liquid current asset of a firm. Cash and cash equivalents (such as short-term investments) are usually the most liquid. Additionally, inventories may yield a higher return than other current assets if they are efficiently managed and sold at a higher price than their cost.

Question 18

Just-in-time inventory management pushes the cost of holding inventory from the manufacturer to the manufacturer's suppliers.

Accepted Answer

Just-in-time inventory management requires suppliers to deliver goods just in time for production, reducing the need for manufacturers to hold excess inventory. This shift in inventory management pushes the cost of holding inventory onto the suppliers, as they are the ones responsible for ensuring that the goods are delivered in a timely manner.

Question 19

Lower ordering costs would tend to increase a firm's economic order quantity.

Accepted Answer

By reducing the numerator in the basic EOQ formula, quantity (the quotient) is reduced.

Question 20

A stock out occurs when a firm runs out of inventory and is unable to sell or deliver the product requested.

Accepted Answer

A stock out occurs when a firm runs out of inventory and is unable to sell or deliver the product requested.

Quiz 7: Current Asset Management

Just-in-time inventory systems can leave manufacturers empty handed if suppliers can't keep up with product growth rates.

The economic order quantity helps a firm determine the most efficient order size to place.

A reduction in carrying costs would increase the economic order quantity.

If a firm averages $2,000 in daily credit sales and offers 60-day terms, the average accounts receivable balance will be $120,000. Avg. A/R = Daily credit sales x credit terms $120,000 = $2,000 x 60 days

When a potential customer has a mediocre credit history, a firm should not consider allowing them to become a customer.

When selecting marketable securities, the company should always select securities with longer maturities if they offer higher yields.

The two basic costs associated with inventory are production cost and ordering cost.

If we assume that inventory is used up at a constant rate and safety stock is zero, the average inventory will be 1/2 the order size.

Return on investment is the major decision criteria in credit decisions.

If a company would like to reduce their average collection period, they can either reduce offer a cash discount or increase their net terms.

Because of changing economic conditions, it is difficult for companies such as Dun & Bradstreet to devise models predicting payment problems and probability of bankruptcy 12 months in the future.

Seasonal production allows for maximum efficiency in machinery and manpower use.

Finding out who is ultimately responsible for a bad debt can be helped by Dun & Bradstreet's D-U-N-S (Data Universal Numbers System) that tracks relationships and ownership of businesses within Dun & Bradstreet's information base.

Maintaining a safety stock will guard against an EOQ from occurring.

The use of "float" has dramatically increased since the Check Clearing for the 21st Century Act was passed.

When considering offering a cash discount, a firm must weigh the benefits of freed up cash with the cost of the cash discount.

Inventories are usually the most liquid, but lowest-yielding, current asset of a firm.

Just-in-time inventory management pushes the cost of holding inventory from the manufacturer to the manufacturer's suppliers.

Lower ordering costs would tend to increase a firm's economic order quantity.

A stock out occurs when a firm runs out of inventory and is unable to sell or deliver the product requested.

The use of "float" has dramatically increased since the Check Clearing for the 21^st Century Act was passed.