Deck 16: Cash Conversion, inventory, and Receivables Management

Question 1

Bavarian Brew Credit Terms
Bavarian Brew is producing and selling brewery equipment to microbreweries nationwide. Bavarian is charging $15,000 per unit and all of their sales are on credit. Under the current credit policy Bavarian Brew expects to sell 500 units. The variable costs are $6,000/unit and fixed costs are $1,500,000 per year. The company is thinking about changing their credit terms from net 30 to 3/10 net 30. The effect of this change would be a 5% increase in unit sales, but also an increase in bad debt expenses from 2% to 4% of sales. The company expects 75% of its customers to take advantage of the cash discount. Currently the company has an average collection period of 38 days, 30 days until the customers mail their payments and another 8 days to process the payments once they arrive. Bavarian Brew's opportunity cost of funds invested in accounts receivable is 12%.
What is Bavarian Brew's accounts receivables turnover under the old credit policy?

A) 14.61
B) 10.43
C) 12.69
D) 9.61

Answer 1

9.61

Question 2

Bavarian Brew Credit Terms
Bavarian Brew is producing and selling brewery equipment to microbreweries nationwide. Bavarian is charging $15,000 per unit and all of their sales are on credit. Under the current credit policy Bavarian Brew expects to sell 500 units. The variable costs are $6,000/unit and fixed costs are $1,500,000 per year. The company is thinking about changing their credit terms from net 30 to 3/10 net 30. The effect of this change would be a 5% increase in unit sales, but also an increase in bad debt expenses from 2% to 4% of sales. The company expects 75% of its customers to take advantage of the cash discount. Currently the company has an average collection period of 38 days, 30 days until the customers mail their payments and another 8 days to process the payments once they arrive. Bavarian Brew's opportunity cost of funds invested in accounts receivable is 12%.
What is Bavarian Brew's bad debt expense under the new credit policy?

A) $150,000
B) $315,000
C) $157,500
D) $300,000

Answer 2

$315,000

Question 3

Bavarian Brew has an average age of inventory of 35 days,an average collection period of 27 days,and an average payment period of 16 days.What is the company's cash conversion cycle?

A) 62 days
B) 46 days
C) 51 days
D) 43 days

Answer 3

46 days

Question 4

Bavarian Brew has an average payment period of 35 days,an average collection period of 27 days and a cash conversion cycle of 16 days.What is the company's average age of inventory?

A) 51 days
B) 43 days
C) 24 days
D) 16 days

Question 5

Bavarian Brew Credit Terms
Bavarian Brew is producing and selling brewery equipment to microbreweries nationwide. Bavarian is charging $15,000 per unit and all of their sales are on credit. Under the current credit policy Bavarian Brew expects to sell 500 units. The variable costs are $6,000/unit and fixed costs are $1,500,000 per year. The company is thinking about changing their credit terms from net 30 to 3/10 net 30. The effect of this change would be a 5% increase in unit sales, but also an increase in bad debt expenses from 2% to 4% of sales. The company expects 75% of its customers to take advantage of the cash discount. Currently the company has an average collection period of 38 days, 30 days until the customers mail their payments and another 8 days to process the payments once they arrive. Bavarian Brew's opportunity cost of funds invested in accounts receivable is 12%.
What is Bavarian Brew's marginal profit from increased sales?

A) $500,000
B) $225,000
C) $305,000
D) $425,000

Question 6

The time from the receipt of raw materials to the collection of the cash of the sale of the finished good is called a firm's

A) operating cycle
B) cash conversion cycle
C) inventory period
D) accounts receivables period

Question 7

Bavarian Brew Credit Terms
Bavarian Brew is producing and selling brewery equipment to microbreweries nationwide. Bavarian is charging $15,000 per unit and all of their sales are on credit. Under the current credit policy Bavarian Brew expects to sell 500 units. The variable costs are $6,000/unit and fixed costs are $1,500,000 per year. The company is thinking about changing their credit terms from net 30 to 3/10 net 30. The effect of this change would be a 5% increase in unit sales, but also an increase in bad debt expenses from 2% to 4% of sales. The company expects 75% of its customers to take advantage of the cash discount. Currently the company has an average collection period of 38 days, 30 days until the customers mail their payments and another 8 days to process the payments once they arrive. Bavarian Brew's opportunity cost of funds invested in accounts receivable is 12%.
What is Bavarian Brew's total variable cost of annual sales under the old credit policy?

A) $3,150,000
B) $2,500,000
C) $3,000,000
D) $3,750,000

Question 8

The inventory control system technique that segregates inventory into three groups is called the

A) economic order quantity model
B) ABC system
C) material requirements planning system
D) just-in-time system

Question 9

Bavarian Brew Credit Terms
Bavarian Brew is producing and selling brewery equipment to microbreweries nationwide. Bavarian is charging $15,000 per unit and all of their sales are on credit. Under the current credit policy Bavarian Brew expects to sell 500 units. The variable costs are $6,000/unit and fixed costs are $1,500,000 per year. The company is thinking about changing their credit terms from net 30 to 3/10 net 30. The effect of this change would be a 5% increase in unit sales, but also an increase in bad debt expenses from 2% to 4% of sales. The company expects 75% of its customers to take advantage of the cash discount. Currently the company has an average collection period of 38 days, 30 days until the customers mail their payments and another 8 days to process the payments once they arrive. Bavarian Brew's opportunity cost of funds invested in accounts receivable is 12%.
What is Bavarian Brew's average investment in accounts receivables under the old credit policy?

A) $287,631
B) $236,407
C) $205,479
D) $312,175

Question 10

Which of the following is not one of the five Cs of credit?

A) character
B) capacity
C) capital
D) credit scoring

Question 11

Bavarian Brew Credit Terms
Bavarian Brew is producing and selling brewery equipment to microbreweries nationwide. Bavarian is charging $15,000 per unit and all of their sales are on credit. Under the current credit policy Bavarian Brew expects to sell 500 units. The variable costs are $6,000/unit and fixed costs are $1,500,000 per year. The company is thinking about changing their credit terms from net 30 to 3/10 net 30. The effect of this change would be a 5% increase in unit sales, but also an increase in bad debt expenses from 2% to 4% of sales. The company expects 75% of its customers to take advantage of the cash discount. Currently the company has an average collection period of 38 days, 30 days until the customers mail their payments and another 8 days to process the payments once they arrive. Bavarian Brew's opportunity cost of funds invested in accounts receivable is 12%.
What is Bavarian Brew's total variable cost of annual sales under the new credit policy?

A) $3,150,000
B) $3,000,000
C) $2,500,000
D) $3,750,000

Question 12

The terms of sale for customers are called the

A) credit terms
B) collection policy
C) cash discounts
D) none of the above

Question 13

Bavarian Brew Credit Terms
Bavarian Brew is producing and selling brewery equipment to microbreweries nationwide. Bavarian is charging $15,000 per unit and all of their sales are on credit. Under the current credit policy Bavarian Brew expects to sell 500 units. The variable costs are $6,000/unit and fixed costs are $1,500,000 per year. The company is thinking about changing their credit terms from net 30 to 3/10 net 30. The effect of this change would be a 5% increase in unit sales, but also an increase in bad debt expenses from 2% to 4% of sales. The company expects 75% of its customers to take advantage of the cash discount. Currently the company has an average collection period of 38 days, 30 days until the customers mail their payments and another 8 days to process the payments once they arrive. Bavarian Brew's opportunity cost of funds invested in accounts receivable is 12%.
What is Bavarian Brew's average investment in accounts receivables under the new credit policy?

A) $198,488
B) $302,013
C) $215,753
D) $236,407

Question 14

Bavarian Brew Credit Terms
Bavarian Brew is producing and selling brewery equipment to microbreweries nationwide. Bavarian is charging $15,000 per unit and all of their sales are on credit. Under the current credit policy Bavarian Brew expects to sell 500 units. The variable costs are $6,000/unit and fixed costs are $1,500,000 per year. The company is thinking about changing their credit terms from net 30 to 3/10 net 30. The effect of this change would be a 5% increase in unit sales, but also an increase in bad debt expenses from 2% to 4% of sales. The company expects 75% of its customers to take advantage of the cash discount. Currently the company has an average collection period of 38 days, 30 days until the customers mail their payments and another 8 days to process the payments once they arrive. Bavarian Brew's opportunity cost of funds invested in accounts receivable is 12%.
What is Bavarian Brew's bad debt expense under the old credit policy?

A) $125,000
B) $100,000
C) $150,000
D) $175,000

Question 15

Bavarian Brew has an average age of inventory of 35 days,an average collection period of 27 days.What is the company's operating cycle?

A) 35 days
B) 27 days
C) 62 days
D) 8 days

Question 16

Bavarian Brew Credit Terms
Bavarian Brew is producing and selling brewery equipment to microbreweries nationwide. Bavarian is charging $15,000 per unit and all of their sales are on credit. Under the current credit policy Bavarian Brew expects to sell 500 units. The variable costs are $6,000/unit and fixed costs are $1,500,000 per year. The company is thinking about changing their credit terms from net 30 to 3/10 net 30. The effect of this change would be a 5% increase in unit sales, but also an increase in bad debt expenses from 2% to 4% of sales. The company expects 75% of its customers to take advantage of the cash discount. Currently the company has an average collection period of 38 days, 30 days until the customers mail their payments and another 8 days to process the payments once they arrive. Bavarian Brew's opportunity cost of funds invested in accounts receivable is 12%.
What is Bavarian Brew's cost of the marginal investment in accounts receivables?

A) $96,534
B) $9,653
C) -$13,642
D) $11,584

Question 17

Bavarian Brew has an average payment period of 35 days,an average age of inventory of 27 days and a cash conversion cycle of 16 days.What is the company's average collection period?

A) 24 days
B) 51 days
C) 16 days
D) 38 days

Question 18

What can a company do to shorten its cash conversion cycle?

A) turn inventory over as quickly as possible
B) collect accounts receivables as quickly as possible
C) pay accounts as slowly as possible
D) all of the above

Question 19

Bavarian Brew has an average age of inventory of 35 days,an average collection period of 27 days and a cash conversion cycle of 16 days.What is the company's average payment period?

A) 46 days
B) 62 days
C) 16 days
D) 19 days

Question 20

Bavarian Brew Credit Terms
Bavarian Brew is producing and selling brewery equipment to microbreweries nationwide. Bavarian is charging $15,000 per unit and all of their sales are on credit. Under the current credit policy Bavarian Brew expects to sell 500 units. The variable costs are $6,000/unit and fixed costs are $1,500,000 per year. The company is thinking about changing their credit terms from net 30 to 3/10 net 30. The effect of this change would be a 5% increase in unit sales, but also an increase in bad debt expenses from 2% to 4% of sales. The company expects 75% of its customers to take advantage of the cash discount. Currently the company has an average collection period of 38 days, 30 days until the customers mail their payments and another 8 days to process the payments once they arrive. Bavarian Brew's opportunity cost of funds invested in accounts receivable is 12%.
What is Bavarian Brew's accounts receivables turnover under the new credit policy?

A) 15.87
B) 14.6
C) 12.69
D) 9.51

Question 21

A firm that moves from traditional inventory stocking methods to a just-in-time (JIT)system should expect to see

A) its inventory turnover decrease and its average age of inventory increase.
B) its inventory turnover decrease and its average age of inventory decrease.
C) its inventory turnover increase and its average age of inventory increase.
D) its inventory turnover increase and its average age of inventory decrease.

Question 22

Smart Products is considering changing its credit terms from net 30 to 2/10 net 30.The firm's financial managers need to evaluate

A) the increased investment in accounts receivable due to increased sales.
B) the reduced level of bad debt expense as customers pay sooner.
C) the increased contribution margin as customers pay sooner.
D) all of the above.

Question 23

The length of time from the receipt of inventory until it is sold is

A) the average age of inventory
B) the cash conversion cycle
C) the average collection period
D) the operating cycle

Question 24

The time between the points at which a firm pays for raw materials and at which it receives payment for finished goods is

A) the average age of inventory
B) the cash conversion cycle
C) the average collection period
D) the operating cycle

Question 25

A negative cash conversion cycle basically means

A) the firm is illiquid, with serious cash flow problems
B) the firm collects on sales more slowly than it pays its payables
C) the firm collects on sales more quickly than it pays its payables.
D) the firm's current cash balance is negative.

Question 26

Refer to Smart Products.If management determines that a four day safety stock is appropriate for this input,what is the new reorder point?

A) 822 units
B) 3288 units
C) 4932 units
D) 4110 units

Question 27

Bavarian Brew Credit Terms
Bavarian Brew is producing and selling brewery equipment to microbreweries nationwide. Bavarian is charging $15,000 per unit and all of their sales are on credit. Under the current credit policy Bavarian Brew expects to sell 500 units. The variable costs are $6,000/unit and fixed costs are $1,500,000 per year. The company is thinking about changing their credit terms from net 30 to 3/10 net 30. The effect of this change would be a 5% increase in unit sales, but also an increase in bad debt expenses from 2% to 4% of sales. The company expects 75% of its customers to take advantage of the cash discount. Currently the company has an average collection period of 38 days, 30 days until the customers mail their payments and another 8 days to process the payments once they arrive. Bavarian Brew's opportunity cost of funds invested in accounts receivable is 12%.
What is Bavarian Brew's cost of marginal bad debts?

A) $150,000
B) $165,000
C) $142,500
D) $175,000

Question 28

Bavarian Brew Credit Terms
Bavarian Brew is producing and selling brewery equipment to microbreweries nationwide. Bavarian is charging $15,000 per unit and all of their sales are on credit. Under the current credit policy Bavarian Brew expects to sell 500 units. The variable costs are $6,000/unit and fixed costs are $1,500,000 per year. The company is thinking about changing their credit terms from net 30 to 3/10 net 30. The effect of this change would be a 5% increase in unit sales, but also an increase in bad debt expenses from 2% to 4% of sales. The company expects 75% of its customers to take advantage of the cash discount. Currently the company has an average collection period of 38 days, 30 days until the customers mail their payments and another 8 days to process the payments once they arrive. Bavarian Brew's opportunity cost of funds invested in accounts receivable is 12%.
What is Bavarian Brew's cost savings from the reduced investment in accounts receivables if they implement the new credit terms?

A) $13,660
B) $113,836
C) $19,493
D) $98,521

Question 29

Miller's Toys has an average inventory of 2,000 toy trucks.The carrying cost per unit per year is 10¢.Miller places an order for 3,500 toy trucks on the first of each month and the order cost is $20.What is the economic order quantity?

A) 894.43
B) 645.28
C) 357.21
D) 4,099

Question 30

If a firm is contemplating a relaxation of its credit standards,which of the following might be expected to result?

A) decreased unit sales
B) increased contribution margin
C) increased investment in accounts receivable
D) decreased bad debt expense

Question 31

The operating cycle is the length of time from the receipt of inventory until the

A) beginning of the cash conversion cycle.
B) end of the cash conversion cycle.
C) payment of accounts payable.
D) collection of cash from sales.

Question 32

Assume a 365 day year.
Smart Products buys 300,000 units of a crucial input per year from a supplier that fulfills its orders within two days of receiving them. Smart Products submits its orders directly to the supplier through a web interface, so its lead time is the supplier's two day turnaround time. Each order costs Smart Products about $500 to place, while carrying costs are about $60 per unit per year. The company seeks to maintain a five day usage level in a safety stock.
What is Smart Products's carrying cost at the EOQ?

A) $49,320
B) $313,655
C) $42,420
D) $134,160

Question 33

Assume a 365 day year.
Smart Products buys 300,000 units of a crucial input per year from a supplier that fulfills its orders within two days of receiving them. Smart Products submits its orders directly to the supplier through a web interface, so its lead time is the supplier's two day turnaround time. Each order costs Smart Products about $500 to place, while carrying costs are about $60 per unit per year. The company seeks to maintain a five day usage level in a safety stock.
What is Smart Product's economic order quantity (EOQ)for this input?

A) 2236 units
B) 707 units
C) 822 units
D) 1581 units

Question 34

If a firm has been experiencing increased sales while its inventory levels have decreased,then

A) its inventory turnover is decreasing, and its average age of inventory is increasing.
B) its inventory turnover is decreasing and its average age of inventory is decreasing.
C) its inventory turnover is increasing and its average age of inventory is increasing.
D) its inventory turnover is increasing and its average age of inventory is decreasing.

Question 35

Which of the following,considered independently of the others,would increase the cash conversion cycle?

A) an increase in inventory turnover
B) an increase in accounts receivable turnover
C) an increase in accounts payable turnover
D) a decrease in average age of inventory

Question 36

Bavarian Brew Credit Terms
Bavarian Brew is producing and selling brewery equipment to microbreweries nationwide. Bavarian is charging $15,000 per unit and all of their sales are on credit. Under the current credit policy Bavarian Brew expects to sell 500 units. The variable costs are $6,000/unit and fixed costs are $1,500,000 per year. The company is thinking about changing their credit terms from net 30 to 3/10 net 30. The effect of this change would be a 5% increase in unit sales, but also an increase in bad debt expenses from 2% to 4% of sales. The company expects 75% of its customers to take advantage of the cash discount. Currently the company has an average collection period of 38 days, 30 days until the customers mail their payments and another 8 days to process the payments once they arrive. Bavarian Brew's opportunity cost of funds invested in accounts receivable is 12%.
What is Bavarian Brew's net profit (loss)from the proposed change in credit terms?

A) $61,472
B) $177,188
C) $13,660
D) $225,000

Question 37

A firm that moves from traditional inventory stocking methods to a just-in-time (JIT)system should expect to see

A) reduced inventory levels.
B) funds released for alternative uses.
C) potentials for production halts.
D) all of the above.

Question 38

Which would improve Smart Product's total cost at the EOQ more,a 15% reduction in carrying costs or a 10% reduction in order costs?

A) decreasing order costs decreases total cost by $10,062
B) decreasing order costs decreases total costs by $6,700
C) decreasing carrying costs decreases total costs by $10,062
D) decreasing carrying costs decreases total costs by $6,700

Question 39

At what inventory level of this input should Smart EOQ reorder?

A) 2236 units
B) 5754 units
C) 4110 units
D) 1644 units

Question 40

Bavarian Brew Credit Terms
Bavarian Brew is producing and selling brewery equipment to microbreweries nationwide. Bavarian is charging $15,000 per unit and all of their sales are on credit. Under the current credit policy Bavarian Brew expects to sell 500 units. The variable costs are $6,000/unit and fixed costs are $1,500,000 per year. The company is thinking about changing their credit terms from net 30 to 3/10 net 30. The effect of this change would be a 5% increase in unit sales, but also an increase in bad debt expenses from 2% to 4% of sales. The company expects 75% of its customers to take advantage of the cash discount. Currently the company has an average collection period of 38 days, 30 days until the customers mail their payments and another 8 days to process the payments once they arrive. Bavarian Brew's opportunity cost of funds invested in accounts receivable is 12%.
What is Bavarian Brew's new average collection period if they introduce the new credit terms?

A) 23 days
B) 33 days
C) 25 days
D) 30 days

Question 41

Sawtooth Industries
Sawtooth Industries uses an economic order quantity (EOQ) model to manage its inventory investment. The company uses about 25,000 molded plastic assemblies each year. Order costs for these are $150 per order, while carrying costs are about $250 per unit per year. Assume a 365 day year.
Using the EOQ,how many orders will Sawtooth place each year?

A) about 68
B) about 145
C) about 86
D) about 112

Question 42

If Polyana were to increase its gross profit margin during the previous year,without changing its accounts receivable level,then what would have happened to Polyana's cash conversion cycle?

A) decrease
B) remain the same
C) increase
D) it is impossible to tell without more information

Question 43

Big Thompson Industries (BTI)
Big Thompson Industries (BTI) currently produces and sells 50,000 units of a motor relay used in high-end electronics. All sales are on credit, for a price of $750 per unit to all customers. These motor relays incur $525 in variable costs and $3,000,000 in fixed costs per year. With current credit standards, BTI's average collection period is 30 days. Managers are considering a relaxation in standards, and forecast a 6 percent increase in sales, along with an increase in the average collection period to 45 days. Additionally, bad debt expense is expected to increase from 1.5 percent to 2.5 percent of sales. Investments of this type are expected to earn a 14% return. Assume a 365 day year
Refer to Big Thompson.What is the marginal cost of bad debt expense if the new standards are adopted?

A) $993,750
B) $937,500
C) $562,500
D) $431,250

Question 44

The Polyana Shoe Store had sales last year of $50,000,000 based upon a cost of goods sold of $40,000,000. Polyana also has inventory, accounts receivable, and accounts payable of $5,000,000, $7,000,000, and $9,000,000, respectively.
What is Polyana's cash conversion cycle period?

A) .365 days
B) 2.740 days
C) 14.600 days
D) 133.225 days

Question 45

The Polyana Shoe Store had sales last year of $50,000,000 based upon a cost of goods sold of $40,000,000. Polyana also has inventory, accounts receivable, and accounts payable of $5,000,000, $7,000,000, and $9,000,000, respectively.
What is Polyana's average age of inventory?

A) .125 days
B) 8.000 days
C) 36.500 days
D) 45.625 days

Question 46

Big Thompson Industries (BTI)
Big Thompson Industries (BTI) currently produces and sells 50,000 units of a motor relay used in high-end electronics. All sales are on credit, for a price of $750 per unit to all customers. These motor relays incur $525 in variable costs and $3,000,000 in fixed costs per year. With current credit standards, BTI's average collection period is 30 days. Managers are considering a relaxation in standards, and forecast a 6 percent increase in sales, along with an increase in the average collection period to 45 days. Additionally, bad debt expense is expected to increase from 1.5 percent to 2.5 percent of sales. Investments of this type are expected to earn a 14% return. Assume a 365 day year
What is BTI's contribution margin?

A) $750 per unit
B) $525 per unit
C) $225 per unit
D) $1, 275 per unit

Question 47

Big Thompson Industries (BTI)
Big Thompson Industries (BTI) currently produces and sells 50,000 units of a motor relay used in high-end electronics. All sales are on credit, for a price of $750 per unit to all customers. These motor relays incur $525 in variable costs and $3,000,000 in fixed costs per year. With current credit standards, BTI's average collection period is 30 days. Managers are considering a relaxation in standards, and forecast a 6 percent increase in sales, along with an increase in the average collection period to 45 days. Additionally, bad debt expense is expected to increase from 1.5 percent to 2.5 percent of sales. Investments of this type are expected to earn a 14% return. Assume a 365 day year
With the current standards,what is BTI's average investment in receivables?

A) $1,080,247
B) $2,157,534
C) $2,746,854
D) $3,240,741

Question 48

A firms' operating cycle measures

A) the time that elapses from the firm's receipt of raw materials until it pays for those materials.
B) the time that elapses from the payment of raw materials until the firm is paid for its finished product.
C) the time that elapses from the firm's receipt of raw materials to begin production to its collection of cash from the sale of the finished product.
D) none of the above.

Question 49

The operating cycle is composed of

A) the average age of a firm's inventory.
B) the average collection period.
C) both a and b
D) none of the above.

Question 50

Big Thompson Industries (BTI)
Big Thompson Industries (BTI) currently produces and sells 50,000 units of a motor relay used in high-end electronics. All sales are on credit, for a price of $750 per unit to all customers. These motor relays incur $525 in variable costs and $3,000,000 in fixed costs per year. With current credit standards, BTI's average collection period is 30 days. Managers are considering a relaxation in standards, and forecast a 6 percent increase in sales, along with an increase in the average collection period to 45 days. Additionally, bad debt expense is expected to increase from 1.5 percent to 2.5 percent of sales. Investments of this type are expected to earn a 14% return. Assume a 365 day year
Refer to Big Thompson.What is the cost of the marginal investment in accounts receivable?

A) $480,267
B) $302,055
C) $274,185
D) $178,212

Question 51

Sawtooth Industries
Sawtooth Industries uses an economic order quantity (EOQ) model to manage its inventory investment. The company uses about 25,000 molded plastic assemblies each year. Order costs for these are $150 per order, while carrying costs are about $250 per unit per year. Assume a 365 day year.
What is Sawtooth's total cost at the EOQ?

A) $43,375
B) $21,750
C) $49,025
D) $46,000

Question 52

Should BTI relax its credit standards?

A) Yes, the forecast is for a $496,788 net gain.
B) Yes, the forecast is for a $65,538 net gain.
C) No, the forecast predicts a $243,750 net loss.
D) No, the forecast predicts a $609,462 net loss.

Question 53

A firm is trying to determine the optimum level for an operating asset which will have an effect on financing costs as well as lost sales cost.The optimum level is that which

A) minimizes the financing costs.
B) minimizes the lost sales costs.
C) minimizes the total amount of financing and lost sales costs.
D) it is impossible to determine without knowing more.

Question 54

Sawtooth Industries
Sawtooth Industries uses an economic order quantity (EOQ) model to manage its inventory investment. The company uses about 25,000 molded plastic assemblies each year. Order costs for these are $150 per order, while carrying costs are about $250 per unit per year. Assume a 365 day year.
What is Sawtooth Industries' economic order quantity (EOQ)for these parts?

A) 122 units
B) 289 units
C) 224 units
D) 173 units

Question 55

The Polyana Shoe Store had sales last year of $50,000,000 based upon a cost of goods sold of $40,000,000. Polyana also has inventory, accounts receivable, and accounts payable of $5,000,000, $7,000,000, and $9,000,000, respectively.
What is Polyana's average collection period?

A) .140 days
B) 7.140 days
C) 51.100 days
D) 63.875 days

Question 56

The Polyana Shoe Store had sales last year of $50,000,000 based upon a cost of goods sold of $40,000,000. Polyana also has inventory, accounts receivable, and accounts payable of $5,000,000, $7,000,000, and $9,000,000, respectively.
What is Polyana's average payment period?

A) .1 days
B) 10.0 days
C) 29.2 days
D) 82.1 days

Question 57

If we can ignore marketing and production costs,the firm can increase inventory management efficiency by

A) increasing inventory levels.
B) decreasing inventory levels.
C) increasing a firm's investment in inventory.
D) none of the above.

Question 58

Big Thompson Industries (BTI)
Big Thompson Industries (BTI) currently produces and sells 50,000 units of a motor relay used in high-end electronics. All sales are on credit, for a price of $750 per unit to all customers. These motor relays incur $525 in variable costs and $3,000,000 in fixed costs per year. With current credit standards, BTI's average collection period is 30 days. Managers are considering a relaxation in standards, and forecast a 6 percent increase in sales, along with an increase in the average collection period to 45 days. Additionally, bad debt expense is expected to increase from 1.5 percent to 2.5 percent of sales. Investments of this type are expected to earn a 14% return. Assume a 365 day year
Refer to Big Thompson.What is the forecasted increase in profits from increased sales if credit standards are changed?

A) $2,250,000
B) $450,000
C) $1,575,000
D) $675,000

Question 59

Big Thompson Industries (BTI)
Big Thompson Industries (BTI) currently produces and sells 50,000 units of a motor relay used in high-end electronics. All sales are on credit, for a price of $750 per unit to all customers. These motor relays incur $525 in variable costs and $3,000,000 in fixed costs per year. With current credit standards, BTI's average collection period is 30 days. Managers are considering a relaxation in standards, and forecast a 6 percent increase in sales, along with an increase in the average collection period to 45 days. Additionally, bad debt expense is expected to increase from 1.5 percent to 2.5 percent of sales. Investments of this type are expected to earn a 14% return. Assume a 365 day year
What will be BTI's average investment in accounts receivable under the new standards?

A) $3,430,479
B) $3,240,741
C) $2,280,738
D) $2,746,854

Question 60

Between 1981 and 2002,the median level of current assets as a portion of total assets for large firms has

A) decreased.
B) remained the same.
C) increased.
D) not been studied.

Question 61

Competitive Mesh Shirts is considering a plan to ease its credit terms in order to generate greater revenues. Last year, Competitive had sales of 1,000,000 units at a price and variable cost of $20 and $15, respectively. Its current average collection period is 20 days and its percentage of bad debt expense is 2% while it required return on investment is 10%. If Competitive were to ease its credit terms, the firm anticipates that its sales would increase to 1,200,000 units without a change in price or variable costs. However, the average collection period is expected to increase to 30 days and bad debt expense is expected to increase to 3%.
What is Competitive's expected increase in bad debt expense?

A) $720,000
B) $400,000
C) $320,000
D) there is not enough information given

Question 62

You are consulting for a firm that anticipates that it will sell 730,000 units this year.The firm's policy is to begin to process a new order when the inventory level is just 10,000 units.What does that imply about the amount of time it take to process and receive an order?

A) 10 days
B) 5 days
C) 2 days
D) more information is need to answer the question

Question 63

The Good Espresso Machine,Inc.sells 5,000 machines per year.If it typically takes 5 days to process and receive an order,then at what level of inventory should the firm place an order?

A) 2.74 machines
B) 13.70 machines
C) 68.49 machines
D) 684.9 machines

Question 64

The outright sale of a firm's receivables to a third party is called

A) a write-off.
B) factoring.
C) re-invoicing.
D) none of the above.

Question 65

Firms that tend to do extensive credit checks on clients before offering credit are more likely to be

A) firms with low variable costs.
B) firms with high variable costs.
C) firms with high fixed costs.
D) none of the above.

Question 66

Competitive Mesh Shirts is considering a plan to ease its credit terms in order to generate greater revenues. Last year, Competitive had sales of 1,000,000 units at a price and variable cost of $20 and $15, respectively. Its current average collection period is 20 days and its percentage of bad debt expense is 2% while it required return on investment is 10%. If Competitive were to ease its credit terms, the firm anticipates that its sales would increase to 1,200,000 units without a change in price or variable costs. However, the average collection period is expected to increase to 30 days and bad debt expense is expected to increase to 3%.
What is Competitive's current average investment in accounts receivable?

A) $41,095.89
B) $54,794.52
C) $821,917.81
D) not enough information is given

Question 67

Which of the following is not one of the five C's of credit?

A) character
B) collections
C) capital
D) collateral

Question 68

Competitive Mesh Shirts is considering a plan to ease its credit terms in order to generate greater revenues. Last year, Competitive had sales of 1,000,000 units at a price and variable cost of $20 and $15, respectively. Its current average collection period is 20 days and its percentage of bad debt expense is 2% while it required return on investment is 10%. If Competitive were to ease its credit terms, the firm anticipates that its sales would increase to 1,200,000 units without a change in price or variable costs. However, the average collection period is expected to increase to 30 days and bad debt expense is expected to increase to 3%.
A positive cash conversion cycle means that:

A) trade credit is providing enough financing to cover the firm's entire operating cycle.
B) the firm collects on sales more slowly than it pays its payables.
C) the firm collects on sales more quickly than it pays its payables.
D) trade credit does not provide enough financing to cover the firm's entire operating cycle.

Question 69

Competitive Mesh Shirts is considering a plan to ease its credit terms in order to generate greater revenues. Last year, Competitive had sales of 1,000,000 units at a price and variable cost of $20 and $15, respectively. Its current average collection period is 20 days and its percentage of bad debt expense is 2% while it required return on investment is 10%. If Competitive were to ease its credit terms, the firm anticipates that its sales would increase to 1,200,000 units without a change in price or variable costs. However, the average collection period is expected to increase to 30 days and bad debt expense is expected to increase to 3%.
What will be Competitive's cost of marginal investment in accounts receivable?

A) $1,479,452.84
B) $821,917.81
C) $65,753.50
D) There is not enough information given

Question 70

An inventory system that is premised on materials arriving exactly when they are needed for production is called

A) materials resource planning.
B) material resource planning II.
C) a just-in-time inventory system.
D) none of the above.

Question 71

The Shoe Club expects to sell 10,000 shoes per month next year.If it costs Shoe Club $15 every time it processes a shoe order and the cost of holding a pair of shoes is about $3 per year,then what is the optimum number of pairs of shoes to order for The Shoe Club?

A) 1,095.45
B) 1,000.00
C) 316.23
D) 100.00

Question 72

Competitive Mesh Shirts is considering a plan to ease its credit terms in order to generate greater revenues. Last year, Competitive had sales of 1,000,000 units at a price and variable cost of $20 and $15, respectively. Its current average collection period is 20 days and its percentage of bad debt expense is 2% while it required return on investment is 10%. If Competitive were to ease its credit terms, the firm anticipates that its sales would increase to 1,200,000 units without a change in price or variable costs. However, the average collection period is expected to increase to 30 days and bad debt expense is expected to increase to 3%.
What is Competitive's net profit for the credit decision at hand?

A) $1,000,000.00
B) $614,246.50
C) $320,000.00
D) $65,753.50

Question 73

The part of credit policy that dictates how delinquent accounts should be handled is called

A) setting the credit terms.
B) determining credit standards.
C) developing a collection policy.
D) none of the above.

Question 74

Competitive Mesh Shirts is considering a plan to ease its credit terms in order to generate greater revenues. Last year, Competitive had sales of 1,000,000 units at a price and variable cost of $20 and $15, respectively. Its current average collection period is 20 days and its percentage of bad debt expense is 2% while it required return on investment is 10%. If Competitive were to ease its credit terms, the firm anticipates that its sales would increase to 1,200,000 units without a change in price or variable costs. However, the average collection period is expected to increase to 30 days and bad debt expense is expected to increase to 3%.
What is Competitive's marginal profit from increased sales?

A) $1,000,000
B) $5,000,000
C) $6,000,000
D) $7,000,000

Question 75

Competitive Mesh Shirts is considering a plan to ease its credit terms in order to generate greater revenues. Last year, Competitive had sales of 1,000,000 units at a price and variable cost of $20 and $15, respectively. Its current average collection period is 20 days and its percentage of bad debt expense is 2% while it required return on investment is 10%. If Competitive were to ease its credit terms, the firm anticipates that its sales would increase to 1,200,000 units without a change in price or variable costs. However, the average collection period is expected to increase to 30 days and bad debt expense is expected to increase to 3%.
What is Competitive's future average investment in accounts receivable?

A) $3,287.67
B) $98,630.14
C) $1,479,452.84
D) not enough information is given

Question 76

Some individuals and families buy staple items such as paper goods from warehouse clubs in large quantities.In such a situation,what is an example of holding costs?

A) There are no holding costs.
B) The opportunity cost associated with having your money tied up in inventory.
C) The transportation costs of going to the store.
D) Both (b) and (c)

Question 77

With respect to inventory:

A) more is better as it will lead to happier customers
B) the larger the level, the faster the total asset turnover and the higher the return on total assets
C) additional investment in inventory must be justified by additional returns.
D) all of the above
E) (b) and (c) only

Question 78

For accounts receivable,with respect to cost trade-offs the costs that must be evaluated are:

A) the cost of investment in accounts receivable and bad debts and the opportunity cost of lost sales due to overly restrictive credit policy and/or terms.
B) carrying costs and order and setup costs associated with replenishment and production of finished goods.
C) costs of reduced liquidity and financing costs resulting from the use of less expensive short-term financing.
D) none of the above

Question 79

Franconia Notch Blowers would like to find the optimum size order given that it annually sells 10,000 snow blowers per year.It costs Franconia $75 each time it processes an order for snow blowers and the carrying cost for each blower is $50 per year.What is the optimum order size for Franconia?

A) 30,000
B) 15,000
C) 173.21
D) 122.47

Question 80

In the ABC System,inventory is categorized based upon:

A) volume
B) color
C) dollar investment
D) none of the above