Chapter 21: Supply Chains and Working Capital Management
1
DIFFICULTY:
Difficulty: Moderate
QUESTION TYPE:
Multiple Choice
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.21.03 – LO: 21-3
United States – BUSPROG: Analytic
STATE STANDARDS:
United States – AK – DISC: Working capital management
United States – OH – Default City – TBA
TOPICS:
Inventory conv. period
KEYWORDS:
DATE CREATED:
10/30/2017 8:14 PM
1/8/2018 8:57 AM
TOPICS:
Inventory conv. period
OTHER:
TYPE: Multiple Choice: Problem
DATE CREATED:
10/30/2017 8:14 PM
1/8/2018 8:57 AM
37. Data on Liu Inc. for the most recent year are shown below, along with the inventory conversion period (ICP) of the
firms against which it benchmarks. The firm’s new CFO believes that the company could reduce its inventory enough to
reduce its ICP to the benchmarks’ average. If this were done, by how much would inventories decline? Use a 365-day
year.
Cost of goods sold =
$85,000
Inventory =
$20,000
Inventory conversion period (ICP) =
85.88
Benchmark inventory conversion period (ICP) =
38.00
a.
$7,316
b.
$8,129
c.
$9,032
d.
$10,036
e.
$11,151
ANSWER:
e
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Page 22
38. Data on Mertz Co. for the most recent year are shown below, along with the payables deferral period (PDP) for the
firms against which it benchmarks. The firm’s new CFO believes that the company could delay payments enough to
increase its PDP to the benchmarks’ average. If this were done, by how much would payables increase? Use a 365-day
year.
Cost of goods sold =
$75,000
Payables =
$5,000
Payables deferral period (PDP) =
24.33
Benchmark payables deferral period =
30.00
a.
$764
b.
$849
c.
$943
d.
$1,048
e.
$1,164
ANSWER:
e
1
DIFFICULTY:
Difficulty: Moderate
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.21.03 – LO: 21-3
United States – BUSPROG: Analytic
STATE STANDARDS:
United States – AK – DISC: Working capital management
United States – OH – Default City – TBA
KEYWORDS:
TYPE: Multiple Choice: Problem
DATE CREATED:
10/30/2017 8:14 PM
1/8/2018 8:57 AM
39. Marshall Inc. recently hired your consulting firm to improve the company’s performance. It has been highly profitable
but has been experiencing cash shortages due to its high growth rate. As one part of your analysis, you want to determine
the firm’s cash conversion cycle. Using the following information and a 365-day year, what is the firm’s present cash
conversion cycle?
Average inventory =
$75,000
Chapter 21: Supply Chains and Working Capital Management
Annual sales =
$600,000
Annual cost of goods sold =
$360,000
Average accounts receivable =
$160,000
Average accounts payable =
$25,000
a.
120.6 days
b.
126.9 days
c.
133.6 days
d.
140.6 days
e.
148.0 days
ANSWER:
e
POINTS:
DIFFICULTY:
Difficulty: Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
LEARNING OBJECTIVES:
IFMG.DAVE.19.21.03 – LO: 21-3
NATIONAL STANDARDS:
United States – BUSPROG: Analytic
STATE STANDARDS:
United States – AK – DISC: Working capital management
LOCAL STANDARDS:
United States – OH – Default City – TBA
TOPICS:
Cash conversion cycle
KEYWORDS:
OTHER:
TYPE: Multiple Choice: Problem
DATE CREATED:
10/30/2017 8:14 PM
DATE MODIFIED:
1/8/2018 8:57 AM
40. Frosty Corporation has the following data, in thousands. Assuming a 365-day year, what is the firm’s cash conversion
cycle?
Annual sales =
$45,000
Annual cost of goods sold =
$31,500
Inventory =
$4,000
Accounts receivable =
$2,000
Accounts payable =
$2,400
a.
25 days
b.
28 days
c.
31 days
d.
35 days
e.
38 days
ANSWER:
d
41. Shulman Inc. has the following data, in thousands. Assuming a 365-day year, what is the firm’s cash conversion cycle?
Annual sales =
$45,000
Annual cost of goods sold =
$30,000
Inventory =
$4,500
Accounts receivable =
$1,800
Accounts payable =
$2,500
a.
28 days
b.
32 days
c.
35 days
d.
39 days
e.
43 days
ANSWER:
d
DIFFICULTY:
Difficulty: Moderate
Multiple Choice
LEARNING OBJECTIVES:
IFMG.DAVE.19.21.03 – LO: 21-3
United States – BUSPROG: Analytic
STATE STANDARDS:
United States – AK – DISC: Working capital management
United States – OH – Default City – TBA
Cash conversion cycle
KEYWORDS:
TYPE: Multiple Choice: Problem
DATE CREATED:
10/30/2017 8:14 PM
1/8/2018 8:57 AM
42. Kiley Corporation had the following data for the most recent year (in millions). The new CFO believes (1) that an
improved inventory management system could lower the average inventory by $4,000, (2) that improvements in the credit
department could reduce receivables by $2,000, and (3) that the purchasing department could negotiate better credit terms
and thereby increase accounts payable by $2,000. Furthermore, she thinks that these changes would not affect either sales
or the costs of goods sold. If these changes were made, by how many days would the cash conversion cycle be lowered?
Original
Revised
Annual sales: unchanged
$110,000
$110,000
Cost of goods sold: unchanged
$80,000
$80,000
Average inventory: lowered by $4,000
$20,000
$16,000
Average receivables: lowered by $2,000
$16,000
$14,000
Average payables: increased by $2,000
$10,000
$12,000
Days in year
365
365
a.
34.0
b.
37.4
c.
41.2
d.
45.3
e.
49.8
ANSWER:
a
POINTS:
1
Difficulty: Moderate
QUESTION TYPE:
Multiple Choice
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.21.03 – LO: 21-3
NATIONAL STANDARDS:
United States – BUSPROG: Analytic
United States – AK – DISC: Working capital management
LOCAL STANDARDS:
United States – OH – Default City – TBA
Cash conversion cycle
KEYWORDS:
OTHER:
TYPE: Multiple Choice: Problem
10/30/2017 8:14 PM
DATE MODIFIED:
1/8/2018 8:57 AM
QUESTION TYPE:
Multiple Choice
43. Whitson Co. is looking for ways to shorten its cash conversion cycle. It has annual sales of $36,500,000, or $100,000
a day on a 365-day basis. The firm’s cost of goods sold is 75% of sales. On average, the company has $9,000,000 in
inventory and $8,000,000 in accounts receivable. Its CFO has proposed new policies that would result in a 20% reduction
in both average inventories and accounts receivable. She also anticipates that these policies would reduce sales by 10%,
while the payables deferral period would remain unchanged at 35 days. What effect would these policies have on the
company’s cash conversion cycle? Round to the nearest whole day.
a.
−26 days
b.
−22 days
c.
−18 days
d.
−14 days
e.
−11 days
ANSWER:
b
POINTS:
1
POINTS:
1
QUESTION TYPE:
Multiple Choice
LEARNING OBJECTIVES:
IFMG.DAVE.19.21.03 – LO: 21-3
NATIONAL STANDARDS:
United States – BUSPROG: Analytic
LOCAL STANDARDS:
United States – OH – Default City – TBA
KEYWORDS:
OTHER:
TYPE: Multiple Choice: Problem
DATE MODIFIED:
1/8/2018 8:57 AM
Difficulty: Moderate
Multiple Choice
HAS VARIABLES:
False
IFMG.DAVE.19.21.03 – LO: 21-3
NATIONAL STANDARDS:
United States – BUSPROG: Analytic
United States – AK – DISC: Working capital management
Cash conversion cycle
44. Pascarella Inc. is revising its payables policy. It has annual sales of $50,735,000, an average inventory level of
$15,012,000, and average accounts receivable of $10,008,000. The firm’s cost of goods sold is 85% of sales. The company
makes all purchases on credit and has always paid on the 30th day. However, it now plans to take full advantage of trade
credit and to pay its suppliers on the 40th day. The CFO also believes that sales can be maintained at the existing level but
inventory can be lowered by $1,946,000 and accounts receivable by $1,946,000. What will be the net change in the cash
conversion cycle, assuming a 365-day year?
a.
−26.6 days
b.
−29.5 days
c.
−32.8 days
d.
−36.4 days
e.
−40.5 days
ANSWER:
POINTS:
1
LEARNING OBJECTIVES:
IFMG.DAVE.19.21.03 – LO: 21-3
United States – BUSPROG: Analytic
United States – AK – DISC: Working capital management
LOCAL STANDARDS:
United States – OH – Default City – TBA
Cash conversion cycle
KEYWORDS:
TYPE: Multiple Choice: Problem
10/30/2017 8:14 PM
DATE MODIFIED:
1/8/2018 8:57 AM
1
Difficulty: Challenging
QUESTION TYPE:
Multiple Choice
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.21.03 – LO: 21-3
United States – BUSPROG: Analytic
United States – AK – DISC: Working capital management
LOCAL STANDARDS:
United States – OH – Default City – TBA
Cash conversion cycle
45. Fontana Painting had the following data for the most recent year (in millions). The new CFO believes that the
company could improve its working capital management sufficiently to bring its NWC and CCC up to the benchmark
companies’ level without affecting either sales or the costs of goods sold. Fontana finances its net working capital with a
bank loan at an 8% annual interest rate, and it uses a 365-day year. If these changes had been made, by how much would
the firm’s pre-tax income have increased?
Original
Benchmark
Sales
Cost of goods sold
Inventory (ICP)
38.00
Receivables (DSO)
Payables (PDP)
126.84
28.00
a.
1,901
b.
2,092
c.
2,301
d.
2,531
e.
2,784
ANSWER:
a
OTHER:
TYPE: Multiple Choice: Problem
10/30/2017 8:14 PM
1/8/2018 8:57 AM
1
DIFFICULTY:
Difficulty: Challenging
QUESTION TYPE:
Multiple Choice
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.21.03 – LO: 21-3
United States – BUSPROG: Analytic
STATE STANDARDS:
United States – AK – DISC: Working capital management
LOCAL STANDARDS:
United States – OH – Default City – TBA
Cash conversion cycle
KEYWORDS:
TYPE: Multiple Choice: Problem
DATE CREATED:
10/30/2017 8:14 PM
DATE MODIFIED:
1/8/2018 8:57 AM
46. Monar Inc.’s CFO would like to decrease its cash conversion cycle by 10 days (based on a 365 day year). The
company carries average inventory of $750,000. Its annual sales are $10 million, its cost of goods sold is 75% of annual
sales, and its average collection period is twice as long as its inventory conversion period. The firm buys on terms of net
30 days, and it pays on time. The CFO believes he can reduce the average inventory to $647,260 with no effect on sales.
By how much must the firm also reduce its accounts receivable to meet its goal in the reduction of the cash conversion
cycle?
a.
$123,630
b.
$130,137
c.
$136,986
d.
$143,836
e.
$151,027
ANSWER:
c
KEYWORDS:
TYPE: Multiple Choice: Problem
DATE CREATED:
10/30/2017 8:14 PM
DATE MODIFIED:
1/8/2018 8:57 AM
47. The overriding goal of inventory management is to ensure that the firm never suffers a stock-out, i.e., never runs out
of an inventory item.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Difficulty: Easy
QUESTION TYPE:
True / False
HAS VARIABLES:
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.21.04 – LO: 21-4
NATIONAL STANDARDS:
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – AK – DISC: Working capital management
LOCAL STANDARDS:
United States – OH – Default City – TBA
TOPICS:
Goal of inventory management
KEYWORDS:
DATE CREATED:
10/30/2017 8:14 PM
DATE MODIFIED:
1/8/2018 8:57 AM
48. The twin goals of inventory management are (1) to ensure that the inventories needed to sustain operations are
available, but (2) to hold the costs of ordering and carrying inventories to the lowest possible level.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Difficulty: Easy
QUESTION TYPE:
True / False
HAS VARIABLES:
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.21.04 – LO: 21-4
NATIONAL STANDARDS:
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – AK – DISC: Working capital management
LOCAL STANDARDS:
United States – OH – Default City – TBA
TOPICS:
Goal of inventory management
KEYWORDS:
DATE CREATED:
10/30/2017 8:14 PM
DATE MODIFIED:
1/8/2018 8:57 AM
49. Which of the following statements is most consistent with efficient inventory management? The firm has a
a.
low incidence of production schedule disruptions.
b.
below average total assets turnover ratio.
c.
relatively high current ratio.
d.
relatively low DSO.
e.
below average inventory turnover ratio.
ANSWER:
a
POINTS:
1
DIFFICULTY:
Difficulty: Easy
QUESTION TYPE:
HAS VARIABLES:
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.21.05 – LO: 21-5
STATE STANDARDS:
United States – AK – DISC: Working capital management
50. The average accounts receivable balance is a function of both the volume of credit sales and the days sales
outstanding.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Difficulty: Easy
QUESTION TYPE:
HAS VARIABLES:
False
LEARNING OBJECTIVES:
NATIONAL STANDARDS:
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – AK – DISC: Working capital management
LOCAL STANDARDS:
TOPICS:
Receivables balance
KEYWORDS:
DATE CREATED:
10/30/2017 8:14 PM
DATE MODIFIED:
1/8/2018 8:57 AM
51. If a firm has a large percentage of accounts over 30 days old, this is proof positive that its receivables manager is not
doing a good job.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Difficulty: Moderate
QUESTION TYPE:
HAS VARIABLES:
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.21.04 – LO: 21-4
NATIONAL STANDARDS:
STATE STANDARDS:
United States – AK – DISC: Working capital management
LOCAL STANDARDS:
TOPICS:
Inventory management
KEYWORDS:
OTHER:
DATE CREATED:
10/30/2017 8:14 PM
DATE MODIFIED:
52. The aging schedule is a commonly used method for monitoring receivables.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
QUESTION TYPE:
True / False
HAS VARIABLES:
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.21.05 – LO: 21-5
NATIONAL STANDARDS:
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
LOCAL STANDARDS:
United States – OH – Default City – TBA
TOPICS:
KEYWORDS:
DATE CREATED:
10/30/2017 8:14 PM
DATE MODIFIED:
53. The four primary elements in a firm’s credit policy are (1) credit standards, (2) cash discounts offered, (3) credit
period, and (4) collection policy.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
QUESTION TYPE:
True / False
HAS VARIABLES:
False
LEARNING OBJECTIVES:
NATIONAL STANDARDS:
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
LOCAL STANDARDS:
United States – OH – Default City – TBA
TOPICS:
Credit policy
KEYWORDS:
DATE CREATED:
10/30/2017 8:14 PM
DATE MODIFIED:
54. Changes in a firm’s collection policy can affect sales, working capital, and profits.
a.
True
b.
False
ANSWER:
True
TOPICS:
Receivables aging
KEYWORDS:
DATE CREATED:
10/30/2017 8:14 PM
DATE MODIFIED:
1/8/2018 8:57 AM
POINTS:
1
DIFFICULTY:
Difficulty: Easy
QUESTION TYPE:
HAS VARIABLES:
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.21.05 – LO: 21-5
STATE STANDARDS:
United States – AK – DISC: Working capital management
55. Not taking cash discounts is costly, and as a result, firms that do not take them are usually those that are performing
poorly and have inadequate cash balances.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Difficulty: Easy
QUESTION TYPE:
HAS VARIABLES:
False
LEARNING OBJECTIVES:
NATIONAL STANDARDS:
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – AK – DISC: Working capital management
LOCAL STANDARDS:
TOPICS:
Taking discounts
KEYWORDS:
DATE CREATED:
10/30/2017 8:14 PM
DATE MODIFIED:
1/8/2018 8:57 AM
56. Suppose a firm changes its credit policy from 2/10 net 30 to 3/10 net 30. The change is meant to meet competition, so
no increase in sales is expected. The average accounts receivable balance will probably decline as a result of this change.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
QUESTION TYPE:
True / False
HAS VARIABLES:
False
LEARNING OBJECTIVES:
NATIONAL STANDARDS:
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
LOCAL STANDARDS:
United States – OH – Default City – TBA
TOPICS:
Collection policy
KEYWORDS:
DATE CREATED:
10/30/2017 8:14 PM
DATE MODIFIED:
1
DIFFICULTY:
True / False
HAS VARIABLES:
False
LEARNING OBJECTIVES:
United States – BUSPROG: Analytic
STATE STANDARDS:
United States – OH – Default City – TBA
TOPICS:
DATE CREATED:
DATE MODIFIED:
57. Since receivables and payables both result from sales transactions, a firm with a high receivables-to-sales ratio must
also have a high payables-to-sales ratio.
a.
True
b.
False
ANSWER:
False
1
DIFFICULTY:
HAS VARIABLES:
False
LEARNING OBJECTIVES:
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – OH – Default City – TBA
TOPICS:
KEYWORDS:
10/30/2017 8:14 PM
DATE MODIFIED:
58. Dimon Products’ sales are expected to be $5 million this year, with 90% on credit and 10% for cash. Sales are
expected to grow at a stable, steady rate of 10% annually in the future. Dimon’s accounts receivable balance will remain
constant at the current level, because the 10% cash sales can be used to support the 10% growth rate, other things held
constant.
a.
True
b.
False
ANSWER:
False
TOPICS:
DATE CREATED:
DATE MODIFIED:
59. For a zero-growth firm, it is possible to increase the percentage of sales that are made on credit and still keep accounts
receivable at their current level, provided the firm can shorten the length of its collection period sufficiently.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Difficulty: Moderate
QUESTION TYPE:
True / False
HAS VARIABLES:
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.21.05 – LO: 21-5
NATIONAL STANDARDS:
United States – BUSPROG: Analytic
LOCAL STANDARDS:
United States – OH – Default City – TBA
TOPICS:
Receivables and growth
KEYWORDS:
DATE CREATED:
10/30/2017 8:14 PM
DATE MODIFIED:
1/8/2018 8:57 AM
60. A firm’s collection policy, i.e., the procedures it follows to collect accounts receivable, plays an important role in
keeping its average collection period short, although too strict a collection policy can reduce profits due to lost sales.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Difficulty: Moderate
QUESTION TYPE:
True / False
HAS VARIABLES:
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.21.05 – LO: 21-5
NATIONAL STANDARDS:
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – AK – DISC: Working capital management
LOCAL STANDARDS:
United States – OH – Default City – TBA
TOPICS:
Collection policy
KEYWORDS:
DATE CREATED:
10/30/2017 8:14 PM
DATE MODIFIED:
1/8/2018 8:57 AM
61. Because money has time value, a cash sale is always more profitable than a credit sale.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Difficulty: Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Analytic
62. If a firm sells on terms of 2/10 net 30 days, and its DSO is 28 days, then the fact that the 28-day DSO is less than the
30-day credit period tells us that the credit department is functioning efficiently and there are no past-due accounts.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Difficulty: Moderate
QUESTION TYPE:
True / False
HAS VARIABLES:
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.21.05 – LO: 21-5
NATIONAL STANDARDS:
United States – BUSPROG: Analytic
STATE STANDARDS:
United States – AK – DISC: Working capital management
LOCAL STANDARDS:
United States – OH – Default City – TBA
TOPICS:
DSO and past-due accounts
KEYWORDS:
DATE CREATED:
10/30/2017 8:14 PM
DATE MODIFIED:
1/8/2018 8:57 AM
63. Which of the following is NOT commonly regarded as being a credit policy variable?
a.
Collection policy.
b.
Credit standards.
c.
Cash discounts.
d.
Payments deferral period.
e.
Credit period.
ANSWER:
d
DIFFICULTY:
Difficulty: Moderate
QUESTION TYPE:
True / False
HAS VARIABLES:
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.21.05 – LO: 21-5
NATIONAL STANDARDS:
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – AK – DISC: Working capital management
LOCAL STANDARDS:
United States – OH – Default City – TBA
TOPICS:
Cash vs. credit sales
KEYWORDS:
DATE CREATED:
10/30/2017 8:14 PM
DATE MODIFIED:
1/8/2018 8:57 AM
64. Which of the following statements is CORRECT?
a.
In managing a firm’s accounts receivable, it is possible to increase credit sales per day yet still keep accounts
receivable fairly steady, provided the firm can shorten the length of its collection period (its DSO) sufficiently.
b.
Because of the costs of granting credit, it is not possible for credit sales to be more profitable than cash sales.
c.
Since receivables and payables both result from sales transactions, a firm with a high receivables-to–sales ratio
must also have a high payables-to–sales ratio.
d.
Other things held constant, if a firm can shorten its DSO, this will lead to a higher current ratio.
e.
A firm that makes 90% of its sales on credit and 10% for cash is growing at a constant rate of 10% annually.
Such a firm will be able to keep its accounts receivable at the current level, since the 10% cash sales can be
used to finance the 10% growth rate.
ANSWER:
a
Difficulty: Moderate
QUESTION TYPE:
Multiple Choice
LEARNING OBJECTIVES:
IFMG.DAVE.19.21.05 – LO: 21-5
United States – BUSPROG: Analytic
United States – AK – DISC: Working capital management
LOCAL STANDARDS:
United States – OH – Default City – TBA
Receivables management
KEYWORDS:
TYPE: Multiple Choice: Conceptual
10/30/2017 8:14 PM
DATE MODIFIED:
1/8/2018 8:57 AM
65. Which of the following statements is CORRECT?
a.
If a firm that sells on terms of net 30 changes its policy to 2/10 net 30, and if no change in sales volume
occurs, then the firm’s DSO will probably increase.
b.
If a firm sells on terms of 2/10 net 30, and its DSO is 30 days, then the firm probably has some past-due
accounts.
c.
If a firm sells on terms of net 60, and if its sales are highly seasonal, with a sharp peak in December, then its
DSO as it is typically calculated (with sales per day = Sales for past 12 months/365) would probably be lower
in January than in July.
d.
If a firm changed the credit terms offered to its customers from 2/10 net 30 to 2/10 net 60, then its sales should
increase, and this should lead to an increase in sales per day, and that should lead to a decrease in the DSO.
e.
Other things held constant, the higher a firm’s days sales outstanding (DSO), the better its credit department.
ANSWER:
b
United States – OH – Default City – TBA
TOPICS:
Credit policy
TYPE: Multiple Choice: Conceptual
DATE CREATED:
10/30/2017 8:14 PM
1/8/2018 8:57 AM
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Page 38
66. Which of the following statements is CORRECT?
a.
If cash inflows from collections occur in equal daily amounts but most payments must be made on the 10th of
each month, then a regular monthly cash budget will be misleading. The problem can be corrected by using a
daily cash budget.
b.
Sound working capital policy is designed to maximize the time between cash expenditures on materials and
the collection of cash on sales.
c.
If a firm wants to generate more cash flow from operations in the next month or two, it could change its credit
policy from 2/10 net 30 to net 60.
d.
If a firm sells on terms of net 90, and if its sales are highly seasonal, with 80% of its sales in September, then
its DSO as it is typically calculated (with sales per day = Sales for past 12 months/365) would probably be
lower in October than in August.
e.
Depreciation is included in the estimate of cash flows (Cash flow = Net income = Depreciation); hence
depreciation is set forth on a separate line in the cash budget.
ANSWER:
a
DIFFICULTY:
Difficulty: Moderate
QUESTION TYPE:
Multiple Choice
LEARNING OBJECTIVES:
IFMG.DAVE.19.21.05 – LO: 21-5
United States – BUSPROG: Analytic
STATE STANDARDS:
United States – AK – DISC: Working capital management
United States – OH – Default City – TBA
TOPICS:
Working capital concepts
KEYWORDS:
TYPE: Multiple Choice: Conceptual
DATE CREATED:
10/30/2017 8:14 PM
1/8/2018 8:57 AM
67. Krackle Korn Inc. had credit sales of $3,500,000 last year and its days sales outstanding was DSO = 35 days. What
was its average receivables balance, based on a 365-day year?
a.
$335,616
b.
$352,397
DIFFICULTY:
Difficulty: Moderate
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
IFMG.DAVE.19.21.05 – LO: 21-5
United States – BUSPROG: Analytic
STATE STANDARDS:
United States – AK – DISC: Working capital management
United States – OH – Default City – TBA
TOPICS:
Days sales outstanding (DSO)
KEYWORDS:
TYPE: Multiple Choice: Conceptual
DATE CREATED:
10/30/2017 8:14 PM
1/8/2018 8:57 AM
Chapter 21: Supply Chains and Working Capital Management
POINTS:
1
DIFFICULTY:
Difficulty: Challenging
Multiple Choice
HAS VARIABLES:
False
IFMG.DAVE.19.21.05 – LO: 21-5
NATIONAL STANDARDS:
United States – BUSPROG: Analytic
STATE STANDARDS:
United States – AK – DISC: Working capital management
United States – OH – Default City – TBA
OTHER:
TYPE: Multiple Choice: Problem
c.
$370,017
d.
$388,518
e.
$407,944
ANSWER:
a
POINTS:
1
DIFFICULTY:
Difficulty: Easy
Multiple Choice
HAS VARIABLES:
False
IFMG.DAVE.19.21.05 – LO: 21-5
NATIONAL STANDARDS:
United States – BUSPROG: Analytic
STATE STANDARDS:
United States – AK – DISC: Working capital management
United States – OH – Default City – TBA
TOPICS:
Accounts receivable balance
OTHER:
TYPE: Multiple Choice: Problem
DATE CREATED:
10/30/2017 8:14 PM
1/8/2018 8:57 AM
68. Famous Farm’s payables deferral period (PDP) is 50 days (on a 365-day basis), accounts payable are $100 million, and
its balance sheet shows inventory of $125 million. What is the inventory turnover ratio?
a.
4.73
b.
5.26
c.
5.84
d.
6.42
e.
7.07
ANSWER:
c
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Page 40
69. If a firm busy on terms of 2/10 net 30, it should pay as early as possible during the discount period.
a.
True
b.
False
ANSWER:
False
POINTS:
1
Difficulty: Easy
QUESTION TYPE:
False
LEARNING OBJECTIVES:
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
LOCAL STANDARDS:
Trade credit
KEYWORDS:
10/30/2017 8:14 PM
DATE MODIFIED:
70. Trade credit can be separated into two components: free trade credit, which is credit received after the discount period
ends, and costly trade credit, which is the cost of discounts not taken.
a.
True
b.
False
ANSWER:
False
POINTS:
1
Difficulty: Easy
QUESTION TYPE:
False
LEARNING OBJECTIVES:
NATIONAL STANDARDS:
United States – AK – DISC: Working capital management
LOCAL STANDARDS:
Trade credit
KEYWORDS:
DATE CREATED:
1/8/2018 8:57 AM
71. As a rule, managers should try to always use the free component of trade credit but should use the costly component
only if the cost of this credit is lower than the cost of credit from other sources.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DATE CREATED:
1/8/2018 8:57 AM