Exam 16: Managing Short-Term Liabilities Financing

Calculate the economic ordering quantity for Nashville Records Inc., given the following information: Sales = 15,000 units per year Sales price = $10 per unit Purchase price = $5 Carrying cost = 0.25 times inventory value Fixed cost per order = $1,000

Ace Hardware's EOQ is 100 widgets, and it maintains a 50 unit safety stock.Which of the following is Ace's average inventory?

Which of the following statements is correct?

The four major elements in a firm's credit policy are (1) credit standards, (2) credit terms, (3) monitoring function, and (4) collection policy.

Inventory management focuses on three basic questions: (1) how many units to hold in stock, (2) how many units of each item to order, and (3) at what point to reorder.

East Lansing Appliances East Lansing Appliances (ELA) expects to have sales this year of $15 million under its current credit policy. The present terms are net 30; the days sales outstanding (DSO) is 60 days; and the bad debt loss percentage is 5 percent. Since ELA wants to improve its profitability, the treasurer has proposed that the credit period be shortened to 15 days. This change would reduce expected sales by $500,000, but it would also shorten the DSO on the remaining sales to 30 days. Expected bad debt losses on the remaining sales would fall to 3 percent. The variable cost percentage is 60 percent, and the cost of capital is 15 percent. -Refer to East Lansing Appliances.What would be the incremental bad debt losses if the change were made?

A cash balance held in reserve for unforeseen fluctuation in cash flows is called a balance.