Working Capital management

Question 1

Float is

Answer 1

The difference between the balance of checks o/s, which have not cleared the bank and deposits made but which have not yet cleared the bank

Question 2

a firm would generally choose to finance temporary assets with ST debt

Answer 2

matching the maturities of current assets and liabilities reduces risk.

Question 3

A lockbox system expedites cash inflows (minimizes collection float

Answer 3

Lockbox system minimizes collection float

Question 4

A working capital technique that delays the outflow of cash is a draft

Answer 4

the use of a draft delays a cash disbursement and increases float

Question 5

the current level of inventory has no impact on the optimal level of inventory

Answer 5

the current level of inventory has no impact on the optimal level of inventory

Question 6

The optimal Level of inventory is affected by

Answer 6

1. the time required to receive inventory
2. the cost per unit of inventory, which will have a direct impact on inventory carrying cost
3. the cost of placing on order impacts order frequency, which affects order size. and optimal inventory sale

Question 7

if inventory goes down with no change in CL

Answer 7

Working Capital will decrease

Question 8

if COGM goes up, inventory goes up , Current assets goes up , with no change in CL

Answer 8

WC will increase

Question 9

In inventory Management, the safety stock will tend to increase

Answer 9

if the variability of lead time increases. if lead time became more variable, the amount of safety stock outs will increase

Question 10

A decrease in carrying costs would increase

Answer 10

the Economic Order Quantity.

Question 11

EOQ

Answer 11

EOQ = 2SO/C

Question 12

the amount of inventory that a company would tend to hold in stock would decrease as

Answer 12

the variability of sales decreases, cost of running out of stock decreases, Length of time that goods are in transit decreases

Question 13

the EOQ method of inventory control anticipates orders

Answer 13

at the point where carrying costs are nearest to restocking costs.

Question 14

The EOQ formula assumes that

Answer 14

periodic demand is known, Annual sales volume is a crucial variable in the EOQ formula

Question 15

Paying by means of a draft or check allows the firm

Answer 15

to take advantage of the float period, this delays cash disbursements

Question 16

The cost of not taking a discount is generally higher

Answer 16

than the cost of a bank loan

Question 17

with trade terms of 2/15 net 60, if the discount is not taken

Answer 17

the buyer receives 60 days of free credit

Question 18

the cost of not taking a discount is lower for terms

Answer 18

2/10, net 60 than for 2/10, net 30

Question 19

Safety Stock levels are affected by:

Answer 19

1. uncertain sales forecasts - greater uncertainty means a higher level of safety stock should be carried
2. Dissatisfaction of customers - if customers are dissatisfied with back orders(which occur when there are stock outs), then more saftety stock should be carried to prevent stock outs
3. Uncertain lead times - Greater uncertainty means a higher level of safety stock is needed

Question 20

Inspections are part of order cost

Answer 20

not carrying costs

Question 21

Inventory carrying costs include all costs

Answer 21

Associated with warehousing(Storing), Insurance, Obsolesce, and Spoilage associated with holding inventory

Question 22

Shipping costs(which are selling costs)

Answer 22

would not be considered a carrying cost associated with inventory

Question 23

When the EOQ(economic order quantity) model is used for a firm that manufactures its own inventory

Answer 23

ordering costs consist primarily of production set up

Question 24

if the EOQ for product A is 200 units and the company maintains 50 units safety stock

Answer 24

Reorder Qty = 200/2 = 100 to get Avg Inventory add safety stock of 50 = Avg inventory including safety stock is $50.

Question 25

AP provides a

Answer 25

spontaneous source of financing for a firm

Question 26

Considering the SCOR model of supply chain operation, managing AR and collections from customers falls into the

Answer 26

Deliver process

Question 27

Considering the SCOR model of supply chain operation, Assessing the ability of the suppliers to supply resources is part of the

Answer 27

Plan process

Question 28

Considering the SCOR model of supply chain operation, Implementing changes in the engineering process falls

Answer 28

Make Process

Question 29

Considering the SCOR model of supply chain operation, Collecting and processing vendor payments falls into the

Answer 29

Source process

Question 30

Selecting vendors is a

Answer 30

Source decision

Question 31

The SCOR model includes a series of processes or steps defined as Plan, Source, Make, Deliver

Answer 31

Selecting vendors is a Source Step that implements the plan