Question 1

Which statement concerning the operating cash cycle is true?

Accepted Answer

A)  It is possible to have a negative operating cash cycle. 
B)  The longer the operating cash cycle, the greater the amount of working capital required. 
C)  Reducing the time period for which inventory is held shortens the operating cash cycle. 
D)  All of the statements are true. 
A)  It is possible to have a negative operating cash cycle. 
B)  The longer the operating cash cycle, the greater the amount of working capital required. 
C)  Reducing the time period for which inventory is held shortens the operating cash cycle. 
D)  All of the statements are true. D

Question 2

Which statement concerning working capital is not true?

Accepted Answer

A)  It is possible to have too much working capital. 
B)  It is possible to have too little working capital. 
C)  The greater the working capital the better. 
D)  There is an 'ideal' level of working capital. 
A)  It is possible to have too much working capital. 
B)  It is possible to have too little working capital. 
C)  The greater the working capital the better. 
D)  There is an 'ideal' level of working capital. C

Question 3

Which of the following is not one of the 'five C's' of deciding which customers should be granted credit?

Accepted Answer

A)  Character. 
B)  Capacity. 
C)  Capability. 
D)  Capital. 
A)  Character. 
B)  Capacity. 
C)  Capability. 
D)  Capital. C

Question 4

The most important reason for holding cash is:

Accepted Answer

A)  to obtain tax benefits. 
B)  for liquidity. 
C)  to avoid changes in interest rates. 
D)  to earn interest. 
A)  to obtain tax benefits. 
B)  for liquidity. 
C)  to avoid changes in interest rates. 
D)  to earn interest.

Question 5

A firm has annual credit sales of $2m,an average debtor's balance of $300,000 and works 365 days a year.The average settlement period for accounts receivable is:

Accepted Answer

A)  66.7 days. 
B)  15 days. 
C)  150 days. 
D)  54.7 days. 
A)  66.7 days. 
B)  15 days. 
C)  150 days. 
D)  54.7 days.

Question 6

The formula for the average inventory turnover period in days is:

Accepted Answer

A)  (Average inventory held/Cost of sales) × 365. 
B)  Average inventory held/Sales. 
C)  Cost of sales/Average inventory. 
D)  None of the above. 
A)  (Average inventory held/Cost of sales) × 365. 
B)  Average inventory held/Sales. 
C)  Cost of sales/Average inventory. 
D)  None of the above.

Question 7

Calculate the operating cash cycle if the inventory turnover period is 21 days,the debtor's turnover period is 32 days and the creditor turnover period is 40 days.

Accepted Answer

A)  93 days. 
B)  13 days. 
C)  -13 days. 
D)  53 days. 
A)  93 days. 
B)  13 days. 
C)  -13 days. 
D)  53 days.

Question 8

Which statement concerning the just-in-time inventory management system is not true?

Accepted Answer

A)  The problem of holding inventory is shifted to the supplier. 
B)  The aim of the system is to eliminate the need for the business to hold inventory. 
C)  The approach is a theoretical one only and has not really been tried in practice. 
D)  For the system to work, there must be a close relationship between the business and its supplier. 
A)  The problem of holding inventory is shifted to the supplier. 
B)  The aim of the system is to eliminate the need for the business to hold inventory. 
C)  The approach is a theoretical one only and has not really been tried in practice. 
D)  For the system to work, there must be a close relationship between the business and its supplier.

Question 9

Which statement concerning trade credit is not true?

Accepted Answer

A)  A discount of 1% offered for prompt payment of amounts owning to creditors is hardly worth taking. 
B)  Trade credit is an important source of finance for most businesses. 
C)  Trade credit is generally regarded as a 'free' source of finance. 
D)  Credit can be a more convenient method of paying for goods than cash. 
A)  A discount of 1% offered for prompt payment of amounts owning to creditors is hardly worth taking. 
B)  Trade credit is an important source of finance for most businesses. 
C)  Trade credit is generally regarded as a 'free' source of finance. 
D)  Credit can be a more convenient method of paying for goods than cash.

Question 10

Working capital is a measure of a firm's:

Accepted Answer

A)  equity. 
B)  liquidity. 
C)  gearing. 
D)  profitability. 
A)  equity. 
B)  liquidity. 
C)  gearing. 
D)  profitability.

Question 11

Calculate the operating cash cycle in days if all sales are for cash,inventory is turned over 7 times a year and creditors are paid on average 5 times a year.

Accepted Answer

A)  +20.9 days. 
B)  52.1 days. 
C)  125.1 days. 
D)  -20.9 days. 
A)  +20.9 days. 
B)  52.1 days. 
C)  125.1 days. 
D)  -20.9 days.

Question 12

All of these are assumptions of the economic order quantity model except:

Accepted Answer

A)  there are no discounts for bulk purchases. 
B)  no buffer inventory is required. 
C)  demand does not fluctuate seasonally. 
D)  the amount of inventory held is constant over the period. 
A)  there are no discounts for bulk purchases. 
B)  no buffer inventory is required. 
C)  demand does not fluctuate seasonally. 
D)  the amount of inventory held is constant over the period.

Question 13

Violet Pty Ltd usually takes 50 days to pay its suppliers.In order to encourage prompt payment,supplier T offers Violet Pty Ltd a 2% discount for payment within 10 days.What is the annual percentage cost of the discount to Violet Pty Ltd?

Accepted Answer

A)  20%. 
B)  18.25%. 
C)  2%. 
D)  73%. 
A)  20%. 
B)  18.25%. 
C)  2%. 
D)  73%.

Question 14

Use the information below to answer the following questions
Aqua Ltd has forecast the yearly demand for its product as 5,000 units. 100 units of material must be used to produce the product. The cost of placing a single order for raw materials is $20, and the cost of holding one unit of material is $0.40 a year.
-Refer to the information above.How often should the company place an order?

Accepted Answer

A)  Every 25 days. 
B)  Every 10 days. 
C)  Every 19 days. 
D)  Every 5 days. 
A)  Every 25 days. 
B)  Every 10 days. 
C)  Every 19 days. 
D)  Every 5 days.

Question 15

The operating cash cycle is measured as:

Accepted Answer

A)  inventory turnover period + accounts receivable turnover period - creditor turnover period. 
B)  inventory turnover period + accounts receivable turnover period + accounts payable turnover period. 
C)  inventory turnover period + accounts receivable turnover period. 
D)  none of the above. 
A)  inventory turnover period + accounts receivable turnover period - creditor turnover period. 
B)  inventory turnover period + accounts receivable turnover period + accounts payable turnover period. 
C)  inventory turnover period + accounts receivable turnover period. 
D)  none of the above.

Question 16

Which changes would increase a firm's net working capital,all other things remaining constant?

Accepted Answer

A)  Decrease in inventories. 
B)  Increase in accounts payable. 
C)  Increase in accounts receivable. 
D)  All of the above. 
A)  Decrease in inventories. 
B)  Increase in accounts payable. 
C)  Increase in accounts receivable. 
D)  All of the above.

Question 17

An advantage of holding inventory is:

Accepted Answer

A)  no interruptions to production. 
B)  ability to buy before prices rise. 
C)  sales are not lost because things are out of stock 
D)  all of the above. 
A)  no interruptions to production. 
B)  ability to buy before prices rise. 
C)  sales are not lost because things are out of stock 
D)  all of the above.

Question 18

Sales forecasts to help determine the amount of inventory to be held can be based on all of the following except:

Accepted Answer

A)  the use of statistical techniques. 
B)  the judgement of sales staff. 
C)  the rate of inflation. 
D)  none of the above, i.e., all can be used to determine sales forecasts. 
A)  the use of statistical techniques. 
B)  the judgement of sales staff. 
C)  the rate of inflation. 
D)  none of the above, i.e., all can be used to determine sales forecasts.

Question 19

One of the most difficult inventory costs to measure is:

Accepted Answer

A)  ordering costs. 
B)  interest costs. 
C)  carrying costs. 
D)  stock out costs. 
A)  ordering costs. 
B)  interest costs. 
C)  carrying costs. 
D)  stock out costs.

Question 20

Working capital for a manufacturer normally makes up ________ percentage of total assets.

Accepted Answer

A)  a significant 
B)  fifty 
C)  a huge 
D)  an unimportant 
A)  a significant 
B)  fifty 
C)  a huge 
D)  an unimportant

Which statement concerning the operating cash cycle is true?

Which statement concerning working capital is not true?

Which of the following is not one of the 'five C's' of deciding which customers should be granted credit?

The most important reason for holding cash is:

A firm has annual credit sales of $2m,an average debtor's balance of $300,000 and works 365 days a year.The average settlement period for accounts receivable is:

The formula for the average inventory turnover period in days is:

Calculate the operating cash cycle if the inventory turnover period is 21 days,the debtor's turnover period is 32 days and the creditor turnover period is 40 days.

Which statement concerning the just-in-time inventory management system is not true?

Which statement concerning trade credit is not true?

Working capital is a measure of a firm's:

Calculate the operating cash cycle in days if all sales are for cash,inventory is turned over 7 times a year and creditors are paid on average 5 times a year.

All of these are assumptions of the economic order quantity model except:

Violet Pty Ltd usually takes 50 days to pay its suppliers.In order to encourage prompt payment,supplier T offers Violet Pty Ltd a 2% discount for payment within 10 days.What is the annual percentage cost of the discount to Violet Pty Ltd?

The operating cash cycle is measured as:

Which changes would increase a firm's net working capital,all other things remaining constant?

An advantage of holding inventory is:

Sales forecasts to help determine the amount of inventory to be held can be based on all of the following except:

One of the most difficult inventory costs to measure is:

Working capital for a manufacturer normally makes up ________ percentage of total assets.

Introduction to Accounting

Measuring and Reporting Financial Position

Measuring and Reporting Financial Performance

Introduction to Limited Companies

Regulatory Framework for Companies

Measuring and Reporting Cash Flows

Corporate Social Responsibility and Sustainability Accounting

Analysis and Interpretation of Financial Statements

Costvolumeprofit Analysis and Relevant Costing

Full Costing

Budgeting

Capital Investment Decisions

Financing the Business

Filters

Exam 13: The Management of Working Capital

Which statement concerning the operating cash cycle is true?

Which statement concerning working capital is not true?

Which of the following is not one of the 'five C's' of deciding which customers should be granted credit?

The most important reason for holding cash is:

A firm has annual credit sales of $2m,an average debtor's balance of $300,000 and works 365 days a year.The average settlement period for accounts receivable is:

The formula for the average inventory turnover period in days is:

Calculate the operating cash cycle if the inventory turnover period is 21 days,the debtor's turnover period is 32 days and the creditor turnover period is 40 days.

Which statement concerning the just-in-time inventory management system is not true?

Which statement concerning trade credit is not true?

Working capital is a measure of a firm's:

Calculate the operating cash cycle in days if all sales are for cash,inventory is turned over 7 times a year and creditors are paid on average 5 times a year.

All of these are assumptions of the economic order quantity model except:

Violet Pty Ltd usually takes 50 days to pay its suppliers.In order to encourage prompt payment,supplier T offers Violet Pty Ltd a 2% discount for payment within 10 days.What is the annual percentage cost of the discount to Violet Pty Ltd?

The operating cash cycle is measured as:

Which changes would increase a firm's net working capital,all other things remaining constant?

An advantage of holding inventory is:

Sales forecasts to help determine the amount of inventory to be held can be based on all of the following except:

One of the most difficult inventory costs to measure is:

Working capital for a manufacturer normally makes up ________ percentage of total assets.

Introduction to Accounting

Measuring and Reporting Financial Position

Measuring and Reporting Financial Performance

Introduction to Limited Companies

Regulatory Framework for Companies

Measuring and Reporting Cash Flows

Corporate Social Responsibility and Sustainability Accounting

Analysis and Interpretation of Financial Statements

Costvolumeprofit Analysis and Relevant Costing

Full Costing

Budgeting

Capital Investment Decisions

Financing the Business

Filters