Exam 23: Advanced Issues in Cash Management and Inventory Control

Exhibit 23.3 Assume that Palmer Executive Pens uses 1,440,000 gallons of ink each year. Further, assume that Palmer can order the ink at a cost of $2 per gallon plus fixed ordering costs of $100 per order. The firm's carrying cost is 20 percent of the inventory value, at cost. -Refer to Exhibit 23.3.What is the firm's EOQ?

Exhibit 23.2 Cartwright Computing expects to order 126,000 memory chips for inventory during the coming year, and it will use this inventory at a constant rate. Fixed ordering costs are $200 per order; the purchase price per chip is $25; and the firm's inventory carrying costs is equal to 20 percent of the purchase price. (Assume a 360-day year.) -Refer to Exhibit 23.2.If Cartwright holds a safety stock equal to a 30-day supply of chips,what is its average inventory level?

New England Charm,Inc.specializes in selling scented candles.The company has established a policy of reordering inventory every 30 days.A recently employed MBA has considered New England's inventory problem from the EOQ model viewpoint.If the following constitute the relevant data,how does the current policy compare with the optimal policy? Ordering cost =\ 10 per order Carrying cost =20\% of purchase price Purchase price =\ 10 per unit Total sales for year =1,000 units Safety stock =0

For some firms,holding highly liquid marketable securities is a substitute for holding cash because a marketable securities portfolio can accomplish the same objective as cash.

The easier a firm's access to borrowed funds the higher its precautionary balances will be,in order to protect against sudden increases in interest rates.

Exhibit 23.1 The Duckett Group is trying to determine its optimal average cash balance. The firm has determined that it will need $5,000,000 net new cash during the coming year. The fixed transaction cost of converting securities to cash is $50, and the firm earns 10 percent on its marketable securities investments. -Refer to Exhibit 23.1.According to the Baumol model,what is the optimal transaction size for transfers from marketable securities to cash?

Which of the following is true of the EOQ model? Note that the optimal order quantity,Q,will be called EOQ.

If a company increases its safety stock,then its EOQ will go up.

During times of inflation,which of these inventory accounting methods is best for cash flow?