Question 1

The amount of safety stock that a firm carries depends upon

Accepted Answer

The amount of safety stock that a firm carries depends on the predictability of inventory usage and the time period necessary to fill inventory orders. These factors determine the risk of stockouts or delays in fulfilling orders, which safety stock is meant to mitigate. The riskiness of the storage facility may also be a relevant factor but is not as directly related to safety stock. Therefore, both choices A and B are correct.

Question 2

Massa Machine Tool expects total sales of $60,000. The price per unit is $10. The firm estimates an ordering cost of $25 per order, with an inventory cost of $0.70 per unit. What is the optimum order size?

Accepted Answer

The answer of Massa Machine Tool expects total sales of...

Question 3

Cost savings from JIT inventory management include(s)

Accepted Answer

JIT inventory management allows for reduced overhead expenses due to the elimination of excess stock and unnecessary handling costs. It also helps to lower inventory financing costs by reducing the need for storage space and inventory insurance. Additionally, greater productivity is achieved through the efficient use of resources and reduced lead times. Therefore, all of these options are cost savings benefits of JIT inventory management.

Question 4

Price Corp. is considering selling to a group of new customers and creating new annual sales of $90,000. 5% will be uncollectible. The collection cost on these accounts is 3% of new sales, the cost of producing and selling is 80% of sales and the firm is in the 30% tax bracket. What is the profit on new sales?

Accepted Answer

The profit on new sales is $7,560. This is calculated as follows:Sales: $90,000Uncollectible accounts: $4,500 (5% of $90,000)Collection cost: $2,700 (3% of $90,000)Cost of goods sold: $72,000 (80% of $90,000)Gross profit: $10,800 ($90,000 - $72,000 - $2,700)Taxes: $3,240 (30% of $10,800)Net profit: $7,560 ($10,800 - $3,240)

Question 5

If average daily remittances are $6 million, and "extended disbursement float" adds 2 days to the disbursement schedule, how much should the firm be willing to pay for a cash management system if the firm earns 7% on excess funds.

Accepted Answer

The firm can earn interest on the $12 million ($6 million x 2 days) that is freed up by reducing the float. The annual interest on $12 million at 7% is $840,000.

Question 6

The economic order quantity

Accepted Answer

The economic order quantity (EOQ) provides the lowest inventory costs by finding the optimal order quantity that balances the costs of holding inventory and ordering inventory. However, it does not determine the reorder point or safety stock, which are separate inventory management decisions.

Question 7

The costs of carrying inventory do not include

Accepted Answer

The costs of carrying inventory include interest on funds tied up in inventory, cost of warehouse space, insurance and handling costs. However, ordering costs are not a part of carrying costs, as they are associated with the process of placing an order to replenish inventory.

Question 8

Hedging

Accepted Answer

Hedging can be carried out with a futures contract, which allows individuals or businesses to buy or sell an underlying asset at a specific price and date in the future. This helps to manage risk by locking in a price and avoiding potentially negative market movements. Hedging can also be done with other financial instruments such as options, swaps, and forwards.

Question 9

When developing a credit scoring report, many variables would be considered. Which of the following best represents the major factors Dun & Bradstreet would examine?

Accepted Answer

Dun & Bradstreet would primarily examine the financial statements, payment experiences, and negative public records of a company when developing a credit scoring report. While factors such as age, sales, and profits may also be considered, they are not as critical in determining creditworthiness as the financial health and payment history of the company. Dun & Bradstreet also considers other factors such as industry risk and company size in their credit scoring methodology.

Question 10

Which of the following is not a valid quantitative measure for accounts receivable collection policies?

Accepted Answer

The ratio of debt to equity is a measure of a company's leverage, not directly related to its accounts receivable collection policies. The other options are all valid measures for evaluating collection policies.

Question 11

The economic order quantity

Accepted Answer

The economic order quantity (EOQ) only assumes that delivery times of each order are consistent. It does not consider seasonal inventory usage or stockouts.

Question 12

All of the following are benefits of just-in-time inventory ordering systems except

Accepted Answer

Just-in-time inventory systems prioritize efficient and timely delivery of inventory, which may result in limited quantities of stock on hand. Therefore, there is a risk for potential stock outs, which is not a benefit of this system. However, it does have benefits such as reducing warehouse space, saving utility and manpower costs, and reducing inventory costs.

Question 13

A Just-In-Time (JIT) inventory management program has all but which of the following requirements?

Accepted Answer

JIT inventory management is about minimizing inventory levels, relying on close ties between suppliers, manufacturers, and customers, and quality production. Large safety stocks are not part of the JIT approach, as excess inventory is considered wasteful and costly.

Question 14

Waldron Inc. is considering selling to a group of new customers that will bring in credit sales of $24,000 with a return on sales of 5%. The only new investment will be in accounts receivable. Waldron has a turnover ratio of 6 to 1 between sales and accounts receivable. What is the return on investment?

Accepted Answer

The answer of Waldron Inc. is considering selling to a...

Question 15

Variables important to credit scoring models include

Accepted Answer

All the mentioned variables, including the age of the company, negative public records, and facility ownership, can be important factors in credit scoring models.

Question 16

Companies that are mostly influenced by seasonal sales have to make a choice between

Accepted Answer

Companies influenced by seasonal sales must consider all these options: level production with inventory buildup, seasonal production with an uneven workforce, and choosing between a stable or fluctuating workforce.

Question 17

Modos Company has deposited $3,500 in checks received from customers. It has written $1,400 in checks to its suppliers. The initial bank and book balance was $600. If $1,600 of its customer's checks have cleared but only $600 of its own, calculate its float.

Accepted Answer

The book balance is calculated by adding the deposits and subtracting the withdrawals from the initial bank balance: 
Book balance = $600 + $3,500 - $1,400 = $2,700 
The actual, or bank, balance is calculated by adding the deposited checks that have cleared and subtracting the checks that have been written that have cleared: 
Actual balance = $600 + $1,600 - $600 = $1,600 
The float is the difference between the two balances: 
Float = $2,700 - $1,600 = $1,100. 
Therefore, the best choice is B.

Question 18

When using the economic order quantity model

Accepted Answer

The economic order quantity model aims to minimize the total cost associated with ordering and holding inventory. This occurs when the total carrying costs (holding inventory) and ordering costs (placing orders) are equal. Therefore, choice C states the correct relationship between costs in the economic order quantity model. Choice A is incorrect because ordering costs do not necessarily increase as inventory increases, and may depend on factors such as setup time and transportation costs. Choice B is also incorrect because carrying costs generally increase as inventory increases (e.g. more space needed, greater risk of obsolescence).

Question 19

Inventory is usually divided into three basic categories except

Accepted Answer

Projected sales is not a category of inventory. The three basic categories of inventory are raw materials, work in progress, and finished goods.

Question 20

For a given firm, holding other factors constant, ordering costs per unit generally

Accepted Answer

Ordering costs generally include expenses like placing an order, receiving and inspecting the order, and updating inventory records. As the firm's average inventory increases, the number of orders placed decreases, leading to a decline in ordering costs per unit.

Quiz 7: Current Asset Management

The amount of safety stock that a firm carries depends upon

Massa Machine Tool expects total sales of $60,000. The price per unit is $10. The firm estimates an ordering cost of $25 per order, with an inventory cost of $0.70 per unit. What is the optimum order size?

Cost savings from JIT inventory management include(s)

If average daily remittances are $6 million, and "extended disbursement float" adds 2 days to the disbursement schedule, how much should the firm be willing to pay for a cash management system if the firm earns 7% on excess funds.

The economic order quantity

The costs of carrying inventory do not include

Hedging

When developing a credit scoring report, many variables would be considered. Which of the following best represents the major factors Dun & Bradstreet would examine?

Which of the following is not a valid quantitative measure for accounts receivable collection policies?

The economic order quantity

All of the following are benefits of just-in-time inventory ordering systems except

A Just-In-Time (JIT) inventory management program has all but which of the following requirements?

Variables important to credit scoring models include

Companies that are mostly influenced by seasonal sales have to make a choice between

Modos Company has deposited $3,500 in checks received from customers. It has written $1,400 in checks to its suppliers. The initial bank and book balance was $600. If $1,600 of its customer's checks have cleared but only $600 of its own, calculate its float.

When using the economic order quantity model

Inventory is usually divided into three basic categories except

For a given firm, holding other factors constant, ordering costs per unit generally