Question 1

Which of the following is a possible consequence of a business having too high a level of inventory?

Accepted Answer

A)  Trade payables are likely to be too low
B)  Too much cash is released into the working capital cycle
C)  Customers may go elsewhere
D)  If inventory is perishable, it may reach the end of its shelf life before it can be sold. D

Question 2

Which of the following is an example of a holding cost?

Accepted Answer

A)  Inventory storage cost
B)  Cost of ordering new inventory
C)  Cost of returning inventory that is surplus to requirements
D)  Office rental cost A

Question 3

The management accountant of Xyleron Phospher plc has worked out that the demand for the period for inventory item X2427 is 1400 units.The holding cost per unit is £6.50 and the order cost is £16 per order.What is the Economic Order Quantity (to the nearest whole unit)?

Accepted Answer

A)  42 units
B)  59 units
C)  270 units
D)  83 units D

Question 4

The financial controller of Beauville Designs plc has calculated the following ratios for the company's financial year ended 31 March 20X4: Average inventory turnover period: 82.4 days
Average trade receivables turnover period: 54.3 days
Average trade payables turnover period: 73.7 days
What is the length of the company's operating cycle?

Accepted Answer

A)  210.4 days
B)  45.6 days
C)  101.8 days
D)  63.0 days

Question 5

Azee Products Limited offers 30-day credit terms to its customers.An age analysis of the company's receivables at 31 May 20X6 shows the following (with comparative figures for 31 May 20X5) along with the percentage of receivables in each category):  Two statements have been made by the company's sales director about this age analysis:
A Credit control has generally improved over the year since May 20X5
B The position in respect of balances outstanding for between 31 and 60 days has improved since May 20X5
Which of these statements are correct?

Accepted Answer

A)  Neither
B)  Both
C)  A only
D)  B only

Question 6

The management accountant of Prince & Porter plc has worked out that the demand for the period for inventory item BB774 is 900 units.The holding cost per unit is £3.75 and the order cost is £10 per order.What is the Economic Order Quantity (to the nearest whole unit)?

Accepted Answer

A)  26 units
B)  35 units
C)  69 units
D)  49 units

Question 7

The financial controller of James & Stratton Limited has calculated the following ratios for the company's financial year ended 31 December 20X9: Average inventory turnover period: 36.4 days
Average trade receivables turnover period: 42.7 days
Average trade payables turnover period: 56.4 days
What is the length of the company's operating cycle?

Accepted Answer

A)  22.7 days
B)  135.5 days
C)  62.7 days
D)  50.1 days

Question 8

The management accountant of XP Supplies plc has worked out that the demand for the period for inventory item ZZ776 is 800 units.The holding cost per unit is £1.80 and the order cost is £10 per order.What is the Economic Order Quantity (to the nearest whole unit)?

Accepted Answer

A)  67 units
B)  17 units
C)  94 units
D)  9 units

Question 9

The operating cycle for Desert Filings Ltd was 107.6 days in the year ended 31 December 20X4, compared with 102.7 days in the previous year.Which of the following statements are correct? A The operating cycle has improved in the year ended 31 December 20X4 compared with the previous year
B A longer operating cycle indicates that inventory is being held, on average, for a longer period.

Accepted Answer

A)  Both of them
B)  A only
C)  B only
D)  Neither of them

Question 10

Suki buys a non-current asset for £6850 for use in her business.She pays for it out of the business bank account.Which one of the following statements is correct?

Accepted Answer

A)  The business's capital increases by £6850.
B)  Working capital decreases by £6850.
C)  Working capital increases by £6850.
D)  The business's capital decreases by £6850.

Question 11

Which of the following statements is correct? The length of a business's operating cycle is the time that elapses between:

Accepted Answer

A)  Investment in inventory and the recording of sales on credit
B)  Acquisition of non-current assets and the first receipts of cash generated from the use of the non-current assets in the business
C)  Acquisition of inventory and the receipt of cash for its eventual sale
D)  Initial investment in the business and the first receipts of cash from trading

Question 12

Sara's business lends £10 000 to one of its customers at an annual interest rate of 6%. Which two of the following statements are correct?
A. The annual receipt of interest increases cash.
B. The loan of £10 000 decreases cash in the business.
C. The loan of £10 000 has no effect on the working capital of the business.
D. Capital is decreased by £10 000 when the loan is made.

Accepted Answer

A)  B and C.
B)  C and D.
C)  A and D.
D)  A and B.

Question 13

Which of the following statements is correct? The operating cycle is calculated as:

Accepted Answer

A)  The average inventory turnover period - the average trade payables period - the average trade receivables period
B)  The average inventory turnover period + the average trade receivables period - the average trade payables period
C)  The average trade receivables period + the average trade payables period - the average inventory period
D)  The average trade receivables period + the average trade receivables period + the average trade payables period

Question 14

Renbo Illuminati Ltd uses the EOQ to determine the optimal size of inventory orders.The following information has been established in respect of inventory line AB22: 
A.Demand for the item in the period: 600 units
B. Cost per order: £6
C. Time required to fulfil orders on average: 5 days
D. Holding cost per unit: £4
Which of the above items of information are required in order to calculate the Economic Order Quantity (EOQ)?

Accepted Answer

A)  ABD
B)  BCD
C)  ABC
D)  ACD

Question 15

Which of the following describes working capital? Working capital is:

Accepted Answer

A)  The start-up capital raised by a sole trader before he gives up his full-time employment to start in business.
B)  The financing required for day-to-day running of a business.
C)  The start-up capital provided in the form of loans and gifts from friends and relatives.
D)  The financing invested in the long-term future of the business.

Question 16

Last year Spiller Beamish plc incurred total costs of £250 in placing 10 orders for a product.This year the management accountant would like to use the EOQ model to see if the product should be ordered more, or less, frequently.Holding costs for the product are £3 per unit, and demand for the product for the period is estimated at 7000 units.What is the Economic Order Quantity (to the nearest whole unit), assuming that the cost of placing one order is unchanged from the previous year?

Accepted Answer

A)  342 units
B)  1080 units
C)  242 units
D)  512 units

Question 17

Which of the following is an element of working capital?

Accepted Answer

A)  Equity capital
B)  Non-current assets
C)  Inventory
D)  Expenses

Question 18

Which of the following statements is incorrect? Factoring:

Accepted Answer

A)  Can improve working capital management by speeding up the collection of cash
B)  Requires payment of a handling charge to the factor
C)  Is a service to business provided by the government
D)  Is useful to those businesses that supply goods on credit

Question 19

Which of the following statements is correct? The operating cycle is calculated as:

Accepted Answer

A)  The average trade receivables period + the average trade receivables period + the average trade payables period
B)  The average trade receivables period + the average trade payables period - the average inventory period
C)  The average inventory turnover period - the average trade payables period - the average trade receivables period
D)  The average inventory turnover period + the average trade receivables period - the average trade payables period

Question 20

Which of the following statements is correct? Just-in-Time inventory management:

Accepted Answer

A)  Aims to keep inventory levels high so that it can be supplied very quickly to the production process
B)  Results in high levels of holding costs
C)  Results in high levels of top quality finished goods
D)  Aims to completely eliminate waste in production

Exam 19: The Management of Working Capital

Which of the following is a possible consequence of a business having too high a level of inventory?

Which of the following is an example of a holding cost?

The management accountant of Xyleron Phospher plc has worked out that the demand for the period for inventory item X2427 is 1400 units.The holding cost per unit is £6.50 and the order cost is £16 per order.What is the Economic Order Quantity (to the nearest whole unit) ?

The management accountant of Prince & Porter plc has worked out that the demand for the period for inventory item BB774 is 900 units.The holding cost per unit is £3.75 and the order cost is £10 per order.What is the Economic Order Quantity (to the nearest whole unit) ?

The management accountant of XP Supplies plc has worked out that the demand for the period for inventory item ZZ776 is 800 units.The holding cost per unit is £1.80 and the order cost is £10 per order.What is the Economic Order Quantity (to the nearest whole unit) ?

Suki buys a non-current asset for £6850 for use in her business.She pays for it out of the business bank account.Which one of the following statements is correct?

Which of the following statements is correct? The length of a business's operating cycle is the time that elapses between:

Which of the following statements is correct? The operating cycle is calculated as:

Which of the following describes working capital? Working capital is:

Which of the following is an element of working capital?

Which of the following statements is incorrect? Factoring:

Which of the following statements is correct? The operating cycle is calculated as:

Which of the following statements is correct? Just-in-Time inventory management: