jce costs Php3,000 per month and wit days. Bank Bs lockbox service costs Pre 00 po * colton tne by 4 doy. Bank C's lock Se PEN month and wil reduce colection time by 1 day gut cea sta cosis Pip! 000 per menth and wil reduce cofgert® tothe mone aie aes te epeted @ avrege gs te Me : iris OY 2 thei wshes to maxinie Facome, which bani ph ook A Bank A Bank cM theft B. BankB D. Bank 5 9 |. ABC Company has received proposals from sever * lockbox system to speed up receipts. ABC. recenes = Stay checks per dey averaging PhoI,£00 each, and ts enc 2 Stage a Is 7% per year. Assuming that all i resus and using a 360-day year, which one of the poset feu optimal for ABC? 4 ‘A. APhp0.50 fee per check B.A lat fee of Php125,000 per year CA fee of 0.03% of the amount eollecteg D. A compensating balance of Php1,750,000 ib | 35. Which of the following represents a ‘s Mico 9 repr Ai’ average gross tects 1. Days sales in recelvables* accounts receivable tumover 1, Average daly sales * average collection poneee I, Net sees / average gross receivables, A only © land tony 8. Monly D. Tand IIt only 36. An increase in sales resulting from an increased cash discount for prangt Payment would be expected to cause ‘A An increase in the C. A decrease In the cah operating cycle conversion cycle A decrease in purchase D. An increase In the avendt discounts taken collection period 37. What s the goal of credit poicy? Maximize sales Minimize a expenses B. Minimize bad debt losses 0, Extend credit to te pott where marginal equal marginal cos ~ S766 4 |CamSeanner Scanned with CamScanner— a Bcamseanner v CHAPTER 15: WORKING CaPrTay MANAGEMENT Tea oe oF the de 22S Da of the eis ered policy? 9h Tate be offered ot Tielenth of te tor whieh + Roonare ° Rett y ened be Money) to which a firm will 90 ‘On account. ye In credit policy has caused an Increase in sat » sere SGeeme & met ee a ced an, ‘we know that ful accounts. Based upon this anor et profit has increased. 8, Gross profit has decined, ‘The average collection period has decreased 5 The size ofthe discount oftees has deceased. ‘A. The competitor will do the same thing to prevent lst sales, B The account receivable level i improving, 50 the company can afford the carrying cot of recei The projected ‘will exceed the . There is @ decrease in the distribution level of your produc, and ‘amore aggressive stance in necessary to retain market shave. 4, Accounts recelvable turnover will normally decrease as a result of ‘A. Aniincrease in cash sales in proportion to credit sales. 8. A change in credit policy to lengthen the period for cash discounts. C. A significant sales volume decrease near the end of the ‘accounting period. D. The write-off of an uncollectible account (assuming the use of allowance method) ‘2 The average collection period for a firm measures the number of days AL Before a typical account becomes delinquent. 8. Fora typical check to “clear” through the barking system. S sale Is made until the firm receives the D. Beyond the end of the credit period before a typical customer Payment is received, CB camscanner Scanned with CamScannerCB camscanner CHAPTER 15: WORKING CAPITAL MANAGEWy, 43, Ania! days-sales ou ratio of accounts recelvable, which i e Jos outstancing ‘could Indicate thatthe fem 88 ‘A. Offer small discounts Has 8 relanedcrege Me & tHas an inefficient credit D. Uses a lockhgy Mey andcollection department synchronization flows, and i terms egy 44, An aging of accounts receivable measures the ‘A. Ability of the firm to meet short-term obligations, BL Average length of time that receivables have been ota, C Pererageof sles thot have been collected aera gang? period, 0. ERD gett tat have been outsanty e Fr, 48, An organi A 8 c o ization would usually offer credit terms of 2/10, net 30 whey The cost of capital approaches the prime rate. ‘The organization can borrow funds at a rate exceeding annwal interest cost. = ‘The organization can borrow funds at a rate less than the ana, interest cost. ‘are offering the same terms, and ‘Most competitors te ‘organization has a shortage of cash. — 46. Which one of the folowing statements is most likely to be true a see ‘extends credit to a purchaser for a period of time longer ttan te purchaser’ operating cycle? The seller A B c: Has no need for a stated discount rate or credit period. financing more than just the purchaser's imeriy be certain that the purchaser will be able to comer te ‘companies whose credit period is shorter than the purses Operating cyde._ 47. The one item listed below that would warrant the least anout d In credit and collection policy decisions is the A. Cash discount given C. Quantity discount given 8% Quality of accounts D, Level of coleci d ‘expenditures ~S7B~ “amScanner Scanned with CamScanner_ 48. ABC Company is changing its credit terms from net 30 to 2/10, net 30, Talat iy eect of change outs ats) A. Increase in sales Increase in short-term borrowings B. Lower number of days’ D, Sexier ofthe ash sales outstanding conversion cycle 49. Consider the following factors affecting a company as it Is reviewing its trade credit policy. 1. Operating at full capacity. Tl. Low cost of borrowing. IIL. Opportunity for repeat sales. IV. Low gross margin per unit. A. Land IT only. C 1,11, and 111 only B. [Link] III only, D. Il and IV only. 50. ABC Company is considering a change in its credit terms from n/30 to 4/10, 1/30. The company’s budgeted sales for the coming year are Php48,000,000, of which 90% are expected to be made on credit. If the new credit terms are adopted, ABC estimates that discounts will be taken on 40% of the credit sales; however, uncollectible accounts will be unchanged. The new credit terms will result in expected discounts taken in the coming year of C.Php768,000 B. PI 1,000 D. Php960,000 51. ABC has an old credit policy generating sales of Php2,700,000 and an average collection period of 32 days. With a new credit policy, sales would ‘amount to Php2,970,000 and an average collection period of 40 days. ‘The company requires a rate of return of 10% and a variable cost ratio of 70%. Using a 360-day year, the pre-tax cost of carrying the additional investment in receivables under the new policy would be A. Php2,800 C. Php6,300 B. Php3,300 D. Php6,000 52. A company plans to lengthen the average collection period from 23 days to 27 days. This act will not affect the uncollectible accounts or the total edit sales. The variable cost ratio is 75%, the opportunity cost of a longer collection period is assumed to be negligible, the company’s budgeted sales for the coming year is Php30,000,000, and the required rate of return is 8%. To justify changes in collection procedures, the ‘minimum annual reduction of costs must be (assume a 360-day year and ignore income taxes) A. Php20,000 C Php250,000 B. Php83,333.33 D. Php333,333.33 53. ABC Company has an average number of 40 days in collection. Its budgeted sales amounted to Php25,000,000. Its ratio of credit sales 579 0 Scanned with CamScannerCHAPTER 35: WORKING CAPITAL MANNE, i ty amounted to 7258. ABC plans to tighten its cre waver of days trait aes toto of the policy, a 1 Wh the new policy on accounts receivable? (assume a east ieee A. Noha B, Decrease of Php875,000 D. py $4, Theses dor of ABC Company suggests that cain Ait 9) In collection would reduce to 39 qPolky, a sales is 60%. In din, bense salto 0% decrease In sales would occup 2 Of the ¢ Pt ng c Decease org) eo d, He estimates the following effects: ow, mee es wll incease by least 15° ‘ema + Accounts receivable tumover wil be req, the present turnover of 15 times. Mee to 10 tingg + Sate NON OSOCHS Wnremeygy jesbfore the proposed changes sat Pp, 600,000, Soon and cated te Of eum ie aoe Fixed expen Seng, 2000 Wat woul be the Benet (os) bya matt a ISeedtter? ete es hp23,100 bene! 7 000 8 pea i0oices D.Pha73.200 en 55. ABC Company currently has a conservative credit process of reviewing three other credit policies. The (Policy 1) resus higher sales, acc Policy andi curentcreaipt Insles of Popt2 millon per year. Poly Zones 2 counts receivable and inventory bal lances, as higher bad debt and collection costs, Policy 4 grants lene terms than policy 3, but charges customers interest ng Fame they wie advantage othe lengthy payrment terms. The polis ae utins ps Policy (in thousands of pesos) 7 2 3 a Ses Php2,000 | Php13,000 | Ppt 4,000 | Phnia io Average AR, 1,500 2,000 3500 | 5000 Sverage Inventory | "2,000 | 2.300. —2.590| 20 Interest income 0 a ot st Bad debt expense 00. i235 00 | 4 Callection cost 00 5 350130 Tu Stet cost of products is 80% of sales andthe cost sat ‘onds's 10%, what Is the optimal policy for ABC Compary? A Paley 1 c Polcy3 BL Policy 2 D. Policy 4 580 ~ ‘ Scanned with CamScannerr CHAPTER, 15: WORKING CAPITAL MANAGEMENT mpany analyzes credit applicant and { commelected, the company Is an Maximize sales increase bad-debis losses D, Increase the Collection period ny's financial plan for next year shows sal wo carsales of Php3,000,000. It £2les of Php4,800,000 GH of expects short ter rates gh ee 12% for the coming year, It aims to increase Iverson aver the present level of 10 times to 15 times next Year. If Its plans and fort es would be carried out, how much is the cost savings for the ng year? ona Php12,000 C. Php36,000 g. Php30,000 D. None of the choices ¥ # tyevee™ average tory management, the problem of avoiding excessive investment 8 Inietores and at the same time avoiding inventory shortages can be rove bY applying a quantitative technique known as ‘A, _ Payback analysis ct B. Probability analysis D. Least squares regression model oes , The same fixed quantity is ordered at each reorder point. Il, Purchasing costs are unaffected by the quantity ordered. Il. Purchase order lead-time is known with certainty. qv. Adequate Inventory is always maintained to avoid stockouts. A. Land IVonly CI, Wand WV only B, Iand Ill only oq Thebes EQ model includes which of the following assumptions? I 60, Which of the following are underlying assumptions in using the Economic Order Quantity (E0Q)? AC i, constant ordering cost, constant carrying cost, unl in and inventory capacity. B. Limited production capacity, declining demand, constant ordering cost, constant carrying cost, and unlimited inventory capacity. . Increasing demand, limited production capacity, increasing ‘ordering cost, increasing carrying cost, and limited inventory capacity. D, Unlimited production capacity, declining demand, decreasing ordering cost, decreasing carrying cost, and unlimited inventory Capacity. ~ 58l~ Scanned with CamScannerCHAPTER 15: WORKING CAPITAL MANAGEMENT 61, The E0Q can be used to determine the optimum size of ‘A. Production runs only C. Purchase orders only B BothAandC D, None of the choices 62. Which of the following Is not directly reflected in the basic economic og, quantity model? ‘A. Inventory obsolescence C.-—Public warehouse rerty hay Interest on Invested. Quay ASCO tn purchases capital inventory 63, ABC Company has estimated its economic order quantity for Part Xx 6,000 units for the coming year. If ordering costs are Phpl,000 ax ‘anrying costs are Php1.25 per unit per year, what is the estimated try ‘annual usage? A. 5,760 units C 22,500 units B, 45,000 units D. None (64. One product of DEF Company has an ordering cost of Php15.00 per ors, ‘The cost of carrying one item of inventory for one year is Php1920. The business sells 40,000 of this type of product evenly throughout the yeu, How much is the total ordering costs per year and the total carrying cos per year at the economic order quantity? ‘A. Php1,875 and Php3,072, respectively B, Php2,000 and Php2,000, respectively C_Php4,800 and Php2,400, respectively ©. PnpZ,400 and Php2,400 respectively 65. KL Company annually consumes 28,000 units of Part X. The canyi ‘ost of this part is Php2.00 per year and the ordering cost 2t 'Php280.00. The company uses an order quantity of 1,400 units. By hor much would the company reduce its total costs if it purchased te economic order quantity instead of 1,400 units? A Php700 Php1,400 8B Php2,100 ©. Php2,800 66. For raw material B, MNO Company maintains a safety stock of 12,00 pounds. Its average Inventory (taking Into account the safety stock) s 19,200 pounds, What Is the apparent order quantity? ‘A. 7,000 pounds 14,000 pounds 8. 7,200 pounds D. 14,400 pounds 67. Which of the folowing scenarios would Justify @ low turnover ratio? ‘A. High carrying costs C. Low Inventory order ems B. High stock-out costs D. Short Inventory order bot times ~ S820 ‘ | CamScanner Scanned with CamScannerry CHAPTER 35: WORKING Caprray Manacedenr one of the following woulg nol Z oe oh loi t be Considered 3 Carrying cost ‘Shipping costs © Insuray g, Cost of obsolescence O. res . Cost of capital invested in the laventory ny optimizes the Invento) “a cones wilt increase “°"'Y umover ratio, which of the fol me canna La CG Unit teorder costs, B. Stock-out cost D. Total reorder Costs yrying costs associated with inventor a ry management nc THEE Insurance COsts, shipping cg lude ‘ obsolescence, sts, storage costs, ang , Storage costs, handling costs, capi ® obsolescence, capital Invested, and Obsolescence, Set-up costs, capital invested, and Purchasing costs. D. Purchasing costs, shipping costs, set-u | discounts lost. sts, Set-Up costs, and quantity 71, Allo the following are inventory carrying costs except ‘A. Storage C Insurance ons. D. Opportunity cost 7h The ordering costs associated with inventory management include ‘A. Insurance costs, purchasing casts, shipping costs, and spoilage. B. Shipping costs, obsolescence, setup casts, and capital invested. €. Obsolescence, setup costs, quantity discounts lost, and storage costs, Purchasing costs, shipping costs, setup costs, and quantity discounts lost. D. TB. Which of the following does not affect the economic order quantity? A. Safety stocklevel C,_Estimate of the annual material consumption B. Cost of purchase- D, Cost of insuring a unit of order forms inventory for a year 4. Which of the following does not affect the optimal level of Inventory? A. Cost per unit of C, Usage rate of Inventory per time inventory period | of D. Cost of placing an order for merchandise ~ 583~ Scanned with CamScanner& CHAPTER 15: WORKING CAPITAL MANAG, e Mey change from first, first-out Inventory vatuatg, * first-out method would N Meth tg ‘A. Not affect the OQ © Decre: the SF ing £9 at B. Inerasethe EOQintimes D. Ineread| he tog of rising prices of, ‘Gedlinin hh ‘9 Prices’ tn, 6. The EOQ for a product 15 500 units. However, ® working-days lead time during which 80 units wi be Ordarg information, the correct EOQ is Used” cates A. 420 units Cs bi, 8,509 uns D. oe . How do you compute for the reorder point? (ignore ma The same as the economic order qui Safety stacey B, The square root of the acated demand dng € hm ted demand Ger cay dg og te D. > time in days. . The economic order quantity times the during the lead time. Smtipaed denny 78, What isthe effect of safety stock to the average invent same inventory item? OF level ety ‘A. No effect C. Decrease by the ana the rey oe ia B. amount of D. Increases by onetat he ‘amount of the safety seat 79, The safety stock will tend to increase if the A. Carrying cost increases, B. Variability of the lead time increases. C. Cost of running out of stock decreases. 0. Variability of the usage rate decreases, 80. The level of safety stock in inventory management depends on aloe following except the A. Cost of reorder stock B, Cost of running out of inventory C. Level of uncertainty of the sales forecast D. Level of customer dissatisfaction for back order ~ 584 aw di S Scanned with CamScannerHAPTER 15: WORKING CaprraL MANAGEMENT tion regarding Inventoy jowing Informat TY Policy was assembled “ wee Company. The company uses a S0-wer year In all caleulaton? s Sales | Order quantity |___4,000 units 2,61 | Safety stock ‘Lead time. jer point is: ten 1,600 units C. 2,600 units p, 4,200 units D. 6,600 units ny Is reviewing Its Inventory Policy with respect to saf 8 oars mest popular product. Four safety stock levels mens asso sad annval stockOut costs estimated for each level, SSE shad [SafetyStock __—T Stockout costs 1,000 units Php3,000 [1,250units 2,000, 1,500 units 1,000 2,000 units 0 Te ato this products Php20 per unit, holding costs are 4% per year, andthe costof short-term funds 10% per year, What is the optimal safe? stock level? ‘A. 1,000 units C 4,250 units i D. 2,000 units {arent Asset Financing 3, Which one of the following provides a spontaneous ‘source of financing for a firm? A. Debentures C. Mortgage bonds B. Accounts payable D. Accounts receivable &. Which one oF the following is not a form of short-term credit2 A. Accrued wages © Corporate bonds 8. Commercial paper ©. Bankers’ acceptances 45 Storterm, unsecured Promissory notes issued by large firms are known as ‘A. Commercial paper Agency securities 8. Bankers’ acceptances ©. Repurchase agreements ~ 585 ~ Scanned with CamScanner