Mod 44 Wrong Answers Flashcards
The main reason to retain working capital is to…
Meet the firm’s financial obligations
Determining the appropriate level of working capital for a firm requires…
Offsetting the benefit of current assets and current liabilities
Against the probability of technical insolvency
The terms of sale are 3/10 net 30. 1 out of 3 customers get the discount and the rest pay on day 30. Calculate the days sales outstanding?
Average days sales outstanding = (1/3) (10 days) + (2/3) (30 days)
A wire transfer fee cost $10 and collections would be accelerated by 3 days and interest paid to the bank per day is 7.2% (7.2%/365 = 0.02%). At what amount of dollars transferred would it be economically feasible to use wire transfer instead of DTC?
$10/(3 x .02%)
A bank will charge $20,000 annually for the lockbox service, which will save the firm approximately $10,000 in processing costs. The lockbox system will reduce the float for cash receipts by 4 days. Assuming the average daily receipts are equal to $200,000 and short term interest costs are 6%. Calculate the benefit or loss from adopting the lockbox system.
$10,000 = ($20,000 - $10,000) = increased cost of calculating cash rec.
$48,000 = ($200,000 x 4 x .06) = interest savings
$48,000 - $10,000 = $38,000 benefit
Alternative marketable security not suitable for short term investment.
Convertible bonds
Between money market accounts, treasury bills, treasury notes and commercial paper, which investment pays the highest return?
Commercial paper
Why does commercial paper have the highest return?
It is issued by the corporation
When switching from a traditional inventory ordering system to a just in time ordering system, what happens to cost per purchase order?
2) inventory unit carrying costs?
Cost per purchase order decreases
2) inventory unit carrying costs increase
Calculating n of reorder point includes consideration of…3
1 average daily usage
2 average delivery time
3 stock out costs
A traditional system that has a lot sized based on immediate need compared to a just in time system that has a lot size based on formulas is…
Not a correct comparison
For a just in time system, lot size is based on…
Immediate need
Traditional system lot size is based on…
Formulas
Inventory turnover equation
Inventory turnover = cost of goods sold/average inventory
When changing from a traditional manufacturing philosophy to a just in time philosophy, what are the expected effects of change on Bell’s inventory turnover and inventory as a percentage of total assets?
Inventory turnover will increase
Inventory percentage will decrease
Safety stock is a…
Buffer of excess inventory held to guard against stock outs
Safety stock is usually a multiple of demand and has…
No effect on a company’s EOQ
Economic order quantity formula assumes that…
Periodic demand for a good is known
The following information pertains to material X that is used by sage company:
Annual usage in units. 40,000
Working days per year. 200
Safety stock in units. 850
Normal lead time in working days. 40
What is the order point?
Daily demand x lead time in days + safety stock
(40,000/200). X. 40. 850
An example of inventory carrying cost is…
Obsolescence
Just in Time inventory management systems relies…
Heavily on good quality materials
Initiating seasonal dating will…
Not reduce credit costs
It will increase credit costs
Current bad debt experience is…
Not relevant to a decision to change current credit policy
Credit sales = $5 million
Relaxing credit standards will increase credit sales by $800,000
Average collection period = 80 days
Variable costs = 70% of sales
Opportunity cost = 30%
360 day year
What is company’s benefit from change in credit terms?
Benefit from increase in sales = $800,000 x 30%
Interest cost = (($800,000 x 70%)/360) x 80 x 30%
