Financial Management exercise

Topics: Inventory, Working capital, Costs Pages: 9 (898 words) Published: December 2, 2013
TUTORIAL WEEK 13 – MANAGEMENT OF ACCOUNT RECEIVABLES & INVENTORY MANAGEMENT

PART A: MULTIPLE CHOICES QUESTION
1.
The conditions under which a firm sells its goods and services for cash or credit are called the:

a)
terms of sale.

b)
credit analysis.

c)
collection policy.

d)
payables policy.

2.
The basic factors to be evaluated in the credit evaluation process, the five Cs of credit, are:

a)
conditions, character, capital, control, and capacity

b)
capital, collateral, control, character, and capacity

c)
character, capacity, control, cessation, and collateral

d)
character, capacity, capital, collateral, and conditions.

3.
The restocking quantity that minimizes the firm’s total inventory cost is called the ________.

a)
shortage cost

b)
carrying cost

c)
economic order quantity

d)
speculation

4.
________ is a system for managing demand-dependent inventories that minimizes the inventory holdings of a firm at any given time.

a)
Just-in-time inventory

b)
Turnover inventory

c)
Net working capital planning

d)
Inventory scoring

5.
The terms of sale generally include all of the following EXCEPT the:

a)
discount period.

b)
credit period.

c)
cash discount.

d)
credit analysis.

6.
A cash discount of 2/10, net 25:

a)
discourages customers from paying early.

b)
grants free credit for a period of 25 days.

c)
grants customers 25 days to pay after the discount period expires.

d)
grants customers an additional 15 days to pay if they forfeit the discount.

7.
Which one of the following statements is correct?

a)
An aging schedule helps identify which customers are the most delinquent.

b)
The percentage of total receivables that fall within a certain time period on an aging schedule will remain constant over time even if the firm has seasonal sales.

c)
Normally firms call their delinquent customers prior to sending them a past due letter.

d)
A constant average collection period over a period of time is cause for concern.

8.
When evaluating the creditworthiness of an individual, the term character refers to the:

a)
nature of the cash flows of the customer’s business.

b)
customer’s willingness to pay his/her bills in a timely fashion.

c)
types of assets the customer wants to pledge as collateral.

d)
customer’s financial resources.

9.
When credit policy is at the optimal point, the:

a)
total costs of granting credit will be maximized.

b)
total costs will equal the opportunity costs.

c)
carrying costs will equal the opportunity costs.

d)
opportunity cost of credit will be equal to zero.

10.
You are doing some comparison shopping. Store A offers credit terms of 1/10, net 20. Store B offers credit terms of 2/10, net 10 and Store C offers credit terms of 2/5, net 30. Given this information, which one of the following statements is correct?

a)
Store A offers the best terms if you do not take the discount.

b)
Store C offers the best terms if you do take the discount.

c)
Store B offers the best terms if you do not take the discount.

d)
Store B offers the best terms if you do take the discount.

11.
Which one of the following inventory items is most likely the most liquid?

a)
raw sugar owned by a cereal manufacturer

b)
completed wheel assemblies for train locomotives

c)
metal cabinets for washing machines

d)
customized spice mix sitting in the inventory of a soup company

12.
The economic order quantity(EOQ) model is designed to determine how much:

a)
total inventory a firm needs in any one year.

b)
total inventory costs will be for any one year.

c)
inventory should be purchased at a time.

d)
inventory will be sold per day.

13.
Which one of the following inventory-related costs is considered a shortage cost?

a)
storage costs

b)
insurance cost

c)
cost of safety reserves...
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