Exam 18: The Management of Accounts Receivable and Inventories

Haulsee Inc.builds 800,000 golf carts a year and purchases the electronic motors for these carts for $370 each.Ordering costs are $540 and Haulsee's inventory carrying costs average 14% of the inventory value.What is the EOQ for Hau1see?

Warren Motor Company sells $30 million of its products to wholesalers on terms of "net 30." Currently, the firm's average collection period is 48 days.In an effort to speed up the collection of receivables, Warren is considering offering a cash discount of 2 percent if customers pay their bills within 10 days.The firm expects 50 percent of its customers to take the discount and its average collection period to decline to 30 days.The firm's required pretax return (i.e., opportunity cost) on receivables investment is 16 percent.Determine the net effect on Warren's pretax profits of offering a 2 percent cash discount.

If a lawn mower assembly plant orders 25,000 frames per year at a price of $27 each, what is the EOQ if the ordering cost per order is $35 and the annual inventory carrying cost is 12 percent?

In general, the a firm's production cycle, the its work-in-process inventory.

The proportion of the total receivables volume a company never collects is the:

What are seasonal datings as it applies to credit terms?

Bluegrass Distilleries, Inc.refuses to extend credit to any wholesale distributors who have a history of being delinquent in repaying credit extended to them.This policy results in lost sales of $10 million annually.Based on past experience with these types of customers, the firm estimates that the average collection period would be 90 days and that the bad-debt loss ratio would be 6 percent.The firm's variable cost ratio is 0.80, making its profit contribution ratio 0.20.Bluegrass Distilleries' required pretax return (i.e., opportunity cost) on receivables investments is 20 percent.When converting from annual to daily data or vice versa, assume there are 365 days per year.Determine the net effect on Bluegrass Distilleries' pretax profits of extending credit to these (previously delinquent) customers

Relaxing (i.e., lowering) the firm's credit standards is likely to result in

Tool Mart sells 1,400 electronic water pumps every year.These pumps cost $54.30 each.If annual inventory carrying costs are 12% and the cost of placing an order is $90, what is the total annual inventory costs?

The credit policy variables that a firm can use to exercise control over its level of receivables investment include

How can a company use its credit period to affect sales and inventory?

All of the following are components of carrying costs except:

All the following are assumptions of the basic EOQ model except:

When an order is placed for an item that is manufactured internally within a company, ordering costs consist primarily of .

RCMP has annual credit sales of $37 million.The credit terms are "net 30" and the current average collection period is 45 days.RCMP is considering changing its terms to 1/10, net 30 in an effort to reduce the average collection period.RCMP believes that 35% of its customers will take the discount, reducing the average collection period to 33 days.Should RCMP offer the discount? Assume the firm's required rate of return on its receivables investment is 14%.

Bluegrass Distilleries, Inc.refuses to extend credit to any wholesale distributors who have a history of being delinquent in repaying credit extended to them.This policy results in lost sales of $10 million annually.Based on past experience with these types of customers, the firm estimates that the average collection period would be 90 days and that the bad-debt loss ratio would be 6 percent.The firm's variable cost ratio is 0.80, making its profit contribution ratio 0.20.Bluegrass Distilleries' required pretax return (i.e., opportunity cost) on receivables investments is 20 percent.When converting from annual to daily data or vice versa, assume there are 365 days per year.If Bluegrass extends full credit to these (previously delinquent) customers, determine the total increase in credit-related costs.

Tool Mart sells 1,400 electronic water pumps every year.These pumps cost $54.30 each.If annual inventory carrying costs are 12% and the cost of placing an order is $90, what is the firm's EOQ?

Mace Auto Parts Company sells to retail auto supply stores on credit terms of "net 60." Annual credit sales are $300 million (spread evenly throughout the year) and its accounts average 28 days overdue.The firm's variable cost ratio is 0.75 (i.e., variable costs are 75 percent of sales).When converting from annual to daily data or vice versa, assume there are 365 days per year.Determine Mace's average collection period.

The cost of funds invested in inventories is measured by the .

serves as a buffer between the various phases in the procurement-production-sales cycle of a manufacturing firm.