Deck 16: Assets: Inventory and Operations Management

Question 1

Intangibility,inseparability,and perishability are the three characteristics of services that impact operations choices and decision making.

Answer 1

True

Question 2

In small businesses,providing credit to customers decreases the need to borrow cash.

Answer 2

False

Question 3

Assigning a high value to inventory results in increased sales margin and reported profit,but at the price of paying increased income taxes.

Answer 3

False

Question 4

Planning,organizing,and staffing are primarily the responsibility of operations management.

Question 5

Bar coding is used to reduce the cost of perpetual inventory systems.

Question 6

Deciding when to place an order to purchase inventory is determined by (1)the rate of sales and (2)the time required to receive new stock.

Question 7

The time value of money is the concept that a dollar received today is worth much more than is a dollar to be received at some time in the future.

Question 8

An arm's length transaction is a business deal where the parties have a prior relation or affiliation,but where the business is conducted as if they were unrelated.

Question 9

One of the policies for managing customer credit requires business owners to maintain constant "aging" of accounts to quickly identify customers who become delinquent.

Question 10

The three primary inventories of manufacturing are raw materials,work in process,and finished goods.

Question 11

Disposal value is based on determining the price of either a new asset or a used asset for which there is an organized market.

Question 12

A lease is simply a rental agreement that specifies a minimum period of time for which one must make rental payments.

Question 13

Current practice is for small businesses to only provide direct credit to customers.

Question 14

The total cost of keeping inventory is the sum of the cost to buy the inventory,the cost to store,protect,and maintain inventory,and the cost of making an order to purchase inventory.

Question 15

Economic order quantity (EOQ)is also called reorder point.

Question 16

The cost of ordering inventory is far greater than the cost of owning and holding inventory.

Question 17

Factoring receivables to a commercial lender is usually less expensive than pledging receivables.

Question 18

The periodic inventory method is the most expensive method of maintaining records.

Question 19

Short-term assets are also known as operating assets.

Question 20

For a small business,the amount and type of inventory held for resale is not important because the supply of inventory and demand of customers can be matched at all times.

Question 21

Giving a third party legal rights to debts owed by the business in order to provide assurance that borrowed money will be repaid is called _____.

A) operating leases
B) factoring receivables
C) capital leases
D) pledging receivables

Question 22

Selling the rights to collect accounts receivable to an entity outside the business is called _____.

A) factoring
B) pledging
C) reconciling
D) outsourcing

Question 23

Which of the following is a statistical technique that determines the size of inventory that a business must hold to minimize total inventory cost?

A) Benchmarking
B) Factoring
C) Pull-push strategy
D) Economic order quantity

Question 24

Which of the following is the largest current asset that most manufacturing,wholesale,and retail firms generally have?

A) Copyright
B) Equipment
C) Inventory
D) Patent

Question 25

Economic order quantity (EOQ)helps a business to think in terms of:

A) factoring receivables.
B) ordering costs and carrying costs.
C) pledging receivables.
D) ordering costs and operating lease.

Question 26

Pledging receivables will get an owner about one-half of the amount that can be collected,whereas,factoring can immediately get an owner _____ percent of the amount due.

A) 90-95
B) 75-80
C) 40-45
D) 20-25

Question 27

The practice of acquiring inventory only in response to a completed sale is called a(n)_____.

A) pull-through system
B) economic order quantity
C) optimum stocking level
D) point-of-sale system

Question 28

A(n)_____ refers to the products that are held for sale to customers.

A) inventory
B) layaway
C) plant
D) lock box

Question 29

A(n)_____ is the amount of inventory that results in the minimum cost,considering the cost of lost sales resulting from running out of stock,the number of units sold per day,and the number of days required to receive inventory.

A) optimum stocking level
B) periodic inventory
C) economic order quantity
D) micro inventory

Question 30

The _____ is also called the reorder point.

A) replacement value
B) disposal value
C) optimum stocking level
D) economic order quantity

Question 31

A(n)_____ is a closed receptacle for money,the keys to which are not available to those who physically handle the receptacle.

A) inventory
B) lock box
C) lease
D) safety stock

Question 32

Which of the following goals need to be addressed for extending credit to customers?

A) Getting as many customers as possible
B) Arranging a loan and making regular payments of interest
C) Keeping the number of bad accounts as low as possible
D) Increasing the time between a credit sale and cash receipt

Question 33

Which of the following policies is a minimum standard for managing customer credit?

A) Providing cash discounts to customers who delay payments
B) Continuing credit sales to customers who become significantly late in paying
C) Authorizing credit sales without any credit check to every individual customer
D) Filing suits and liens against the assets of customers who default on payment

Question 34

A(n)_____ is an amount of inventory carried to ensure that a business will not run out of inventory because of fluctuating levels of sales.

A) micro inventory
B) safety stock
C) just-in-time inventory
D) perpetual inventory

Question 35

A just-in-time (JIT)inventory system attempts to reduce inventory levels to the absolute minimum by:

A) purchasing and accepting inventory before it is sold to a customer.
B) delaying the shipment of the completed product to the customer.
C) keeping safety stock in case the estimate exceeds the demand.
D) assembling the product in the absolute minimum time possible.

Question 36

An ideal situation is where a business receives new inventory just as the last unit of the previous order is sold.However,this rarely occurs because the:

A) inventory level is not affected by demand.
B) delivery times never fluctuate.
C) sales volumes are not constant.
D) estimate never exceeds demand.

Question 37

The practice of purchasing and accepting delivery of inventory only after it has been sold to the final customer is termed as _____.

A) perpetual inventory
B) point-of-sale system
C) just-in-time inventory
D) optimum stocking level

Question 38

Which of the following is an advantage of providing credit to customers?

A) It reduces the need to borrow money.
B) It speeds up the receipt of cash.
C) It reduces the cost of selling.
D) It ensures all customers make on-time payments.

Question 39

_____ refers to money that is owed to a business by its customers who purchased a product on credit.

A) Pledging receivable
B) Accounts receivable
C) Factoring receivable
D) Accounts payable

Question 40

Which of the following is a disadvantage of providing credit to customers?

A) It delays the receipt of cash.
B) It decreases the sales revenue.
C) It lowers the chances of repeat business.
D) It increases the cost of selling.

Question 41

The purchase of inventory-typical with Internet-based businesses-only after a sale is made is called a _____.

A) periodic inventory
B) micro inventory
C) perpetual inventory
D) point-of-sale system

Question 42

If a business offers its assets as collateral,lenders are most interested in the _____ value.

A) book
B) fair market
C) replacement
D) disposal

Question 43

_____ is an arbitrary,but regular and systematic,method used to take asset value as an expense for the purpose of calculating net income or loss.

A) Inventory valuation
B) Capital budgeting
C) Benchmarking
D) Depreciation

Question 44

A _____ is the process of physically counting business assets on a set schedule.

A) periodic inventory
B) perpetual inventory
C) just-in-time inventory
D) micro inventory

Question 45

Depreciation is based on which of the following assumptions?

A) The period of utility of an asset is not fixed or determinable.
B) The value of an asset declines in a predictable manner over the period of utility.
C) The salvage value of an asset will not exist when the depreciation process is complete.
D) The value of an asset is not fixed or determinable.

Question 46

_____ is the cost incurred to substitute one asset with an identical asset.

A) Disposal value
B) Replacement value
C) Fair market value
D) Book value

Question 47

Small businesses use the periodic inventory method because it:

A) gives instant access to accurate inventory records.
B) records the receipt and sale of each item as it occurs.
C) meets the requirements of local and federal taxing agencies.
D) uses bar codes that are unique to each item of inventory.

Question 48

A system of recording the receipt and sale of each item as it occurs is called a _____.

A) micro inventory
B) periodic inventory
C) just-in-time inventory
D) perpetual inventory

Question 49

A _____ describes the difference between the original acquisition cost of capital assets and the amount of depreciation expense that has been recognized to date.

A) fair market value
B) disposal value
C) book value
D) replacement value

Question 50

Which of the following is a primary advantage of replacement value?

A) Lower premiums on the policy
B) Higher price of the new asset
C) High accuracy of the value
D) Lower price of the new asset

Question 51

_____ is the determination of the amount of assets held by the firm for sale or production.

A) Inventory valuation
B) Capital budgeting
C) Factoring
D) Depreciation

Question 52

The price at which goods and services are bought and sold between willing sellers and buyers in an arm's-length transaction is called a _____.

A) fair market value
B) disposal value
C) replacement value
D) book value

Question 53

_____ are assets that are expected to provide economic benefits for periods of time greater than one year.

A) Accounts receivables
B) Hard assets
C) Contingent assets
D) Capital assets

Question 54

The _____ methods define utility as being the net cash inflows that the asset will produce.

A) residual income valuation
B) discounted cash flow valuation
C) inventory valuation
D) pre-money valuation

Question 55

_____ refers to the fixed and determinable value of an asset that will exist when the depreciation process is complete.

A) Market value
B) Book value
C) Salvage value
D) Disposal value

Question 56

Potential buyers and investors are most interested in the _____ value of a business's assets.

A) book
B) replacement
C) charge back
D) disposal

Question 57

_____ refers to the fixed,determinable period of utility of an asset.

A) Useful life
B) Salvage value
C) Payback period
D) Disposal value

Question 58

Which of the following is a feature of the perpetual inventory system?

A) It is the method with the lowest cost for maintaining records.
B) It maintains a constant record of the receipt and sale of inventory.
C) It requires very little time for constant record keeping.
D) It is the process of physically counting inventories on a set schedule.

Question 59

A _____ is a computer-readable tag that is unique to each item of the inventory.

A) bar code
B) copyright
C) patent
D) trademark

Question 60

Which of the following is not generally considered to be very useful for any purpose other than accounting and income taxes?

A) Book value
B) Salvage value
C) Replacement value
D) Disposal value

Question 61

_____ refers to the process of deciding among various investment opportunities to create a specific spending plan.

A) Factoring receivables
B) Cash budgeting
C) Inventory valuation
D) Capital budgeting

Question 62

_____ is a general term for real estate,but it can also be applied as a legal term for anything owned or possessed.

A) Equipment
B) Plant
C) Inventory
D) Property

Question 63

Which of the following is the cost incurred in financing,insuring,taxing,or tracking an asset?

A) Acquisition cost
B) Cost of owning
C) Cost of operating
D) Replacement cost

Question 64

The _____ is the total cost of substituting an asset with an essentially identical asset.

A) cost of disposition
B) replacement cost
C) cost of operating
D) acquisition cost

Question 65

The sum of all costs of capital assets,including acquisition,ownership,operation,and disposal is called _____.

A) acquisition cost
B) cost of owning
C) whole of life cost
D) replacement cost

Question 66

Which of the following is one of the disadvantages of the return on investment (ROI)analysis?

A) The profits received are not the same as cash.
B) The calculations involved in the method are complex.
C) It does not consider annual profits in its calculations.
D) It does not rely on accounting information with which investors are comfortable.

Question 67

A long-term rental in which ownership of the asset never passes to the person paying for the lease is called a(n)_____ lease.

A) leveraged
B) operating
C) finance
D) capital

Question 68

_____ refers to the machinery,tools,or materials used in the performance of the work of a business.

A) Property
B) Plant
C) Inventory
D) Equipment

Question 69

The primary advantage of the payback period is that:

A) it calculates the amount required to attain a capital asset.
B) it incorporates the time value of money.
C) it allows easy comparisons of alternatives.
D) it incorporates all cash flows that occur after the payback period.

Question 70

The total cost of obtaining an asset,including such costs as purchase price,transportation,installation,testing,and calibrating in order to ready it for its first productive use is termed as _____.

A) replacement cost
B) cost of operating
C) cost of disposition
D) acquisition cost

Question 71

The amount of time it takes a business to earn back the funds it paid out to obtain a capital asset is referred to as the _____.

A) payback period
B) synodic period
C) chargeback period
D) grace period

Question 72

What will be the average profit for four years if Jack decides to invest in the HY-200 saw?

A) $21,750
B) $24,750
C) $28,750
D) $31,750

Question 73

_____ refers to a type of periodic inventory that conducts a count of the entire inventory being held for sale at a specific point in time.

A) Factoring
B) Perpetual inventory
C) Physical inventory
D) Benchmarking

Question 74

Lily,a restaurant owner,is planning to invest in a multi-purpose ZS-13 baking oven.The oven costs $20,000 and will have a useful life of 10 years.The payback each year is $8,000.Assuming that the money is received evenly across the year,what will be the payback period if she decides to purchase the oven?

A) 1 year and 5 months
B) 3 years and 3 months
C) 2 years and 1 month
D) 2 years and 6 months

Question 75

The direct cost incurred in using an asset for the purpose for which it was intended is termed as _____.

A) cost of operating
B) cost of owning
C) whole of life cost
D) cost of disposition

Question 76

Which of the following is one of the advantages of the return on investment (ROI)analysis?

A) The profits received are the same as cash.
B) The calculations involved in this method are very difficult.
C) It incorporates the time value of money.
D) It relies on accounting information with which investors are comfortable.

Question 77

Assuming that the money is received evenly across the year,what will be the payback period if Jack decides to invest in the CZ84 double cut frame saw?

A) 3 years and 7 months
B) 2 years and 11 months
C) 2 years and 3 months
D) 3 years and 1 month

Question 78

The primary disadvantage of the payback period is that:

A) it incorporates all cash flows that occur after the payback period.
B) it is highly complex.
C) it does not allow the comparisons of alternatives.
D) it disregards the time value of money.

Question 79

Which of the following is a disadvantage of renting capital assets?

A) It does not protect a business from unexpected costs of repairs.
B) It is not easily available.
C) It requires the business to make regular,timely payments.
D) It requires a major cash investment.

Question 80

The capital budgeting equation used to measure the relationship between initial investment and the profits that are expected to be received from making the investment is called _____.

A) rate of investment
B) return on equity
C) return on investment
D) net present value