Exam 12: Managing Working Capital

According to recent surveys, what is an important difference between managers of small and medium sized businesses in Canada and the United States?

What is the Pattern of Credit Sale Cash Receipts compared to in order to monitor cash collections?

Coronation Computers Sales and Service has annual sales revenue of $2,628,000, cost of goods sold of $1,182,600, an opening inventory of $340,000, a closing inventory of $308,000, and accounts receivable of $345,600. If it purchases all of its inventory on credit and carries accounts payable of $194,400, what is the length of the operating cash cycle (OOC) for the business?

What is the name of the process whereby an external organization takes over the responsibility for the prompt collection of receivables?

ProLogic Chips Ltd. has an average inventory turnover period of 30 days, an average payment period of 40 days, and an average collection period of 50 days. SoftChip Inc. has an average inventory turnover period of 50 days, an average payment period of 70 days, and an average collection period of 40 days. Which company is likely to have greater financial risks?

Of the five C's of credit, what is considered when attempting to determine a business's capacity to borrow?

Which of the following will expand working capital?

Coastal Coffee Distributors Ltd. has sales revenue of $750,000, $850,000, $550,000 and $450,000 from June through September. The company's collection pattern is to collect 20% of sales in the first 30 days, 70% in the next 30 days and 10% in the 30 days after that. There are monthly interest and fixed expenses of $245,500. Variable costs which equal 55% of Sales Revenue comprise accounts payable and are paid the month after they are incurred. There is a cash surplus in July of $49,000. In August the company will require a $90,000 down payment for new vehicles being purchased and in September it will make a 3rd quarter income tax payment of $16,500. After generating the Cash Flow Budget, what will be September's cash balance?

Peaches Creamery Ltd. would like to reduce the average number of days it takes to collect its receivables from 60 days down to 30 days. Peaches thinks this can be accomplished by offering a 1% discount to customers who pay withing 30 days. Precisely what is a customer's annualized cost of forgoing the discount?

Miralonge Manufacturing Ltd. has a net profit of $5.3 million on sales for the year of $43.8 million. The cost of goods sold is 40% of revenue and fixed costs totalled $21 million. The company's collection period is 35 days and average inventory turnover period is 75 days. Miralonge has added a new product to its line that is expected to increase sales revenue by 15%. The company's cost of capital is 8% and its ratios of cost of goods to sales, average collection period and average inventory turnover period will stay the same. Fixed costs will remain unchanged. What will be the net increase to profit, including the costs associated with expanding working capital, from the addition to the product line?

The average inventory turnover period for Catalina Shoe Stores Ltd. is 26 days against an industry average of 38. Which of the following potential higher costs applies to Catalina?

Which of the following is an advantage of the ABC system of inventory control?

Viceroy Audio Ltd. produces components for car, home and television stereo systems. The average collection period for receivables has been stable at 32 days and year-end Accounts Receivable at $656,000. With the onset of recession, customers have been slower to pay and the collection period has risen to 42 days. If the cost of capital to Viceroy Audio is 7% and sales are unchanged, what would the expansion of Accounts Receivable cost the company in a year?

Bonito Fine Drapery Ltd. requires a deposit of 50% of the total cost of draperies from its customers on the date the contract is signed and requires final cash payment on the date of installation. It purchases materials immediately for each order and gets same-day delivery on fabric, trim and drapery hardware. Including the occasional delays and rescheduling of installation dates, the final payment is usually made an average of 20 days after the initial order is signed. The company always pays its suppliers in 30 days. What is the length of the company's operating cash cycle?

Sales intelligence indicates that an increase in the company's average collection period from 32 days to 42 days will increase annual sales revenue by 12% from $9,855,000. All sales are on credit. The company's cost of capital is 9%, its cost of goods sold is 60% of revenue and fixed costs are $2,463,000. After consideration for incremental financing costs, how much of an increase in net profit would the company would achieve?

What is the Economic Order Quantity (EOQ)?

Harrison Grocers Ltd., an important customer of J&P Meat Packers, has been paying its invoices in 120 days. If Harrison has a cost of capital of 9.2%, what is the minimum discount level can J&P offer the company to encourage cash on deliver, in other words, immediate cash payment?

BB's Basement, a bargain retail outlet, purchases $4,000 of end of line clothing inventory from J&P Manufacturing and is granted credit terms of 45 days. BB sells out the inventory for $6,000 within two weeks. Proceeds from the sale after salaries, rent and other expenses, but before paying off accounts payable, is $4,500. If BB can make 3% per annum on a 30-day Guaranteed Investment Certificate (GIC), how much did BB make on the jeans and on managing its working capital?

Your company has been informed that a major supplier is doubling the order processing fee it charges customers from $10 to $20 per order. Meanwhile general interest rates have risen from 1% to 4% due to rapid economic growth in the economy. What else would have to occur for this data not to affect inventory planning by a company?

Magdalene Pottery and Gifts has annual sales revenue of $1,596,875, of which 80% are on credit, and accounts receivable of $143,500. What is the company's average collection period for receivables in days?