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43) Which one of the following inventory items is probably the most liquid?
A) A custom made set of kitchen cabinets
B) Metal cabinets for dishwashers
C) Wheat stored in a grain silo
D) A customized drill press
E) A partially built modular home
44) Which one of the following inventory-related costs is considered a shortage cost?
A) Storage costs
B) Insurance cost
C) Loss of customer goodwill
D) Theft cost
E) Opportunity cost of capital used for inventory purchases
45) The ABC approach to inventory management is based on the concept that:
A) inventory should arrive at the time it is needed in the manufacturing process.
B) the inventory period should be constant for all inventory items.
C) basic inventory items that are essential to production and also inexpensive should be ordered
in small quantities only.
D) a small percentage of inventory items represents a large percentage of inventory cost.
E) one-third of a year's inventory needs should be on hand, another third should be on order, and
the last third should be unordered.
46) The EOQ model is designed to determine how much:
A) total inventory a firm needs during any one year.
B) total inventory costs will be for any one given year.
C) inventory should be purchased at one time.
D) inventory will be sold per day.
E) a firm loses in sales per day when an inventory item is depleted.
47) A particular inventory manager orders items only in quantities that minimize inventory costs.
What is this restocking quantity called?
A) Short order quantity
B) Refill unit quantity
C) Economic order quantity
D) Minimum stock level
E) Re-order limit
48) Allison has developed a set of procedures for determining the amount of each raw material
she needs to have in inventory if she is to keep the assembly lines operating efficiently. These
procedures are commonly referred to by which one of the following terms?
A) First-in, first-out method
B) The Baumol model
C) Net working capital planning
D) Economic order procedures
E) Materials requirements planning
49) Which one of the following is a characteristic of a just-in-time inventory system?
A) High level of dependence on supplier performance
B) Low inventory turnover rates
C) Long inventory periods
D) Unusually high inventory levels
E) Large, infrequent re-orders of raw materials
50) At the optimal order quantity size, the:
A) total cost of holding inventory is fully offset by the restocking costs.
B) carrying costs are equal to zero.
C) restocking costs are equal to zero.
D) total costs equal the carrying costs.
E) carrying costs equal the restocking costs.
51) The EOQ model is designed to minimize:
A) production costs.
B) inventory obsolescence.
C) the carrying costs of inventory.
D) the costs of replenishing inventory.
E) the total costs of holding inventory.
52) Which one of the following items is most likely a derived-demand inventory item?
A) Wrenches held in inventory by a hardware store
B) Tires held in inventory by a tractor manufacturer
C) Shoes on display in a retail store
D) Toys just received by a toy store
E) Wheat harvested by a farmer
53) Inventory needs under a derived-demand inventory system are:
A) primarily dependent upon the competitive demands placed on a firm's suppliers.
B) based on the anticipated demand for the finished product.
C) based on minimizing the cost of restocking inventory.
D) held constant over time.
E) determined by a Kanban system.
54) A just-in-time inventory system:
A) eliminates all inventory costs.
B) reduces the inventory turnover rate.
C) averages long-term inventory needs.
D) focuses on immediate production needs.
E) maximizes inventory costs.
55) The incremental investment in receivables under the accounts receivable approach is equal
to:
A) P − νQ'.
B) PQ'.
C) PQ + ν(Q' − Q).
D) P(Q' − Q).
E) PQ(Q' − Q).
56) The accounts receivable approach to credit policy supports the theory that:
A) a firm's risk of offering credit to a new customer is limited to the cost of the items sold.
B) the best credit policy is an all-cash policy.
C) the cost of offering credit to a new customer is the same as the cost of offering credit to an
existing customer.
D) increasing receivables guarantees increasing profits.
E) the default risk of a credit policy is the same as the default risk under an all cash-policy if
your customers remain the same.
57) Which two of the following are the key elements in determining the break-even default rate
on a credit policy?
A) Credit price and cash price assuming a zero default rate
B) Required rate of return and percentage discount for cash customers
C) Variable cost per unit and required rate of return
D) Sales price and variable cost per unit for credit customers
E) Credit price and discount rate for cash customers
58) On average, CT Motors has daily credit sales of $42,390, an inventory period of 53 days, and
a collection period of 26 days. What is the average accounts receivable balance?
A) $757,900
B) $968,810
C) $1,102,140
D) $1,015,500
E) $896,300
59) Music City has an average collection period of 34.6 days and an average daily investment in
receivables of $71,407. What are the annual credit sales given a 365-day year?
A) $668,407
B) $577,109
C) $753,282
D) $625,893
E) $767,123
60) Turner's offers credit terms of net 30 with payments received an average of 2.8 days past
their due date. Annual credit sales are $2.38 million. What is the average book value of accounts
receivable? Assume a 365-day year.
A) $213,874
B) $223,333
C) $211,667
D) $215,407
E) $223,593
61) Winters' just purchased $42,911 of goods from its supplier with credit terms of 1/5, net 25.
What is the discounted price?
A) $40,765
B) $41,209
C) $42,482
D) $42,911
E) $43,300
62) Today, October 12, Nadine's Fashions purchased merchandise from a supplier. The credit
terms are 2/10, net 30. By what day does Nadine's have to make the payment to receive the
discount? Assume a 30-day month.
A) October 12
B) October 14
C) October 22
D) October 27
E) November 12
63) The Green Hornet offers credit terms of 2/5, net 20. Based on experience, 93 percent of all
customers will take the discount. The firm sells 487 units each month at a price of $649 each.
What is the average book value of accounts receivable? Assume a 365-day year.
A) $60,274
B) $68,272
C) $62,866
D) $67,012
E) $65,387
64) A firm offers credit terms of 2/15, net 45. What effective annual interest rate does the firm
earn when a customer forgoes the discount?
A) 18.67 percent
B) 20.45 percent
C) 23.37 percent
D) 25.34 percent
E) 27.86 percent
65) A supplier grants credit terms of 1/5, net 30. What is the effective annual rate of the discount
on a purchase of $5,000?
A) 17.24 percent
B) 15.80 percent
C) 18.80 percent
D) 19.03 percent
E) 12.27 percent
66) Cape May Products currently sells 487 units a month at a price of $79 a unit. The firm
believes it can increase its sales by an additional 42 units if it switches to a net 30 credit policy.
The monthly interest rate is .25 percent and the variable cost per unit is $31.50. What is the
incremental cash inflow from the proposed credit policy switch?
A) $1,774
B) $1,995
C) $2,746
D) $3,318
E) $3,375
67) Home Accents currently sells 219 units a month at a price of $46 a unit. If it switches to a net
30 credit policy, monthly sales are expected to increase by 28 units. The monthly interest rate is
.57 percent and the variable cost per unit is $21. What is the net present value of the proposed
credit policy switch?
A) $112,145
B) $108,895
C) $106,507
D) $586,799
E) $621,135
68) Currently, Glasgow Importers sells 855 units a month at a price of $39 a unit. By switching
to a net 30 credit policy, sales should increase to 950 units while the price remains constant. The
monthly interest rate is .61 percent and the variable cost per unit is $8. What is the net present
value of the proposed credit policy switch?
A) $513,360
B) $516,892
C) $490,200
D) $537,520
E) $448,682
