CHAPTER 20 B-331
e. A: Rugs are fairly standardized and they are transportable, while carpets are custom fit and are
not particularly transportable.
7. The three main categories of inventory are: raw material (initial inputs to the firm’s production process),
work-in-progress (partially completed products), and finished goods (products ready for sale). From the
8. JIT systems reduce inventory amounts. Assuming no adverse effects on sales, inventory turnover will
increase. Since assets will decrease, total asset turnover will also increase. Recalling the DuPont
equation, an increase in total asset turnover, all else being equal, has a positive effect on ROE.
9. Carrying costs should be equal to order costs. Since the carrying costs are low relative to the order costs,
the firm should increase the inventory level.
10. Since the price of components can decline quickly, Dell does not have inventory which is purchased and
then declines quickly in value before it is sold. If this happens, the inventory may be sold at a loss.
Solutions to Questions and Problems
NOTE: All end of chapter problems were solved using a spreadsheet. Many problems require multiple steps.
Due to space and readability constraints, when these intermediate steps are included in this solutions
manual, rounding may appear to have occurred. However, the final answer for each problem is found
without rounding during any step in the problem.
1. a. There are 30 days until account is overdue. If you take the full period, you must remit:
b. There is a 1 percent discount offered, with a 10 day discount period. If you take the discount, you
will only have to remit:
c. The implicit interest is the difference between the two remittance amounts, or: