Question 1

The easier a firm's access to borrowed funds the higher its precautionary balances will be,in order to protect against sudden increases in interest rates.

Accepted Answer

A) True 
 B)False

Question 2

Exhibit 23.2
Cartwright Computing expects to order 126,000 memory chips for inventory during the coming year, and it will use this inventory at a constant rate. Fixed ordering costs are $200 per order; the purchase price per chip is $25; and the firm's inventory carrying costs is equal to 20 percent of the purchase price. (Assume a 360-day year.) 
-Refer to Exhibit 23.2.If Cartwright holds a safety stock equal to a 30-day supply of chips,what is its average inventory level?

Accepted Answer

A)  12,088
B)  3,175
C)  15,750
D)  13,675
E)  8,124F) All of the above
G) None of the above

Question 3

During times of inflation,which of these inventory accounting methods is best for cash flow?

Accepted Answer

A)  LIFO, because the most expensive goods are recorded as being sold first, resulting in a higher cost of goods sold and a lower reported net income.
B)  Specific identification, because it correctly identifies the actual item sold and so the actual cost is recorded on the income statement.
C)  Weighted average, because it smoothes the reported cost of goods sold over time.
D)  It doesn't matter which you use since cash flow is unaffected by the choice of inventory identification method.
E)  FIFO, because the cheapest goods are recorded as being sold first, resulting in lower cost of goods sold and higher reported net income.F) A) and C)
G) B) and E)

Question 4

If a company increases its safety stock,then its EOQ will go up.

Accepted Answer

A) True 
 B)False

Question 5

For some firms,holding highly liquid marketable securities is a substitute for holding cash because a marketable securities portfolio can accomplish the same objective as cash.

Accepted Answer

A) True 
 B)False

Question 6

New England Charm,Inc.specializes in selling scented candles.The company has established a policy of reordering inventory every 30 days.A recently employed MBA has considered New England's inventory problem from the EOQ model viewpoint.If the following constitute the relevant data,how does the current policy compare with the optimal policy?   Ordering cost =$10 per order  Carrying cost =20% of purchase price  Purchase price =$10 per unit  Total sales for year =1,000 units  Safety stock =0\begin{array}{ll}	ext { Ordering cost } & =\$ 10 	ext { per order } \	ext { Carrying cost } & =20 \% 	ext { of purchase price } \	ext { Purchase price } & =\$ 10 	ext { per unit } \	ext { Total sales for year } & =1,000 	ext { units } \	ext { Safety stock } & =0\end{array} Ordering cost  Carrying cost  Purchase price  Total sales for year  Safety stock ​=$10 per order =20% of purchase price =$10 per unit =1,000 units =0​

Accepted Answer

A)  Total costs will be the same, since the current policy is optimal.
B)  Total costs under the current policy will be less than total costs under the EOQ by $10.
C)  Total costs under the current policy exceed those under the EOQ by $3.
D)  Total costs under the current policy exceed those under the EOQ by $10.
E)  Cannot be determined due to insufficient information. F) B) and D)
G) A) and B)

Question 7

Exhibit 23.3
Assume that Palmer Executive Pens uses 1,440,000 gallons of ink each year. Further, assume that Palmer can order the ink at a cost of $2 per gallon plus fixed ordering costs of $100 per order. The firm's carrying cost is 20 percent of the inventory value, at cost.
-Refer to Exhibit 23.3.What is the firm's EOQ?

Accepted Answer

A)  26,833
B)  30,040
C)  43,987
D)  13,563
E)  21,456F) B) and C)
G) A) and D)

Question 8

Exhibit 23.1
The Duckett Group is trying to determine its optimal average cash balance. The firm has determined that it will need $5,000,000 net new cash during the coming year. The fixed transaction cost of converting securities to cash is $50, and the firm earns 10 percent on its marketable securities investments.
-Refer to Exhibit 23.1.According to the Baumol model,what is the optimal transaction size for transfers from marketable securities to cash?

Accepted Answer

A)  $7,071
B)  $38,357
C)  $70,711
D)  $102,956
E)  $87,000F) A) and C)
G) A) and D)

Question 9

Which of the following is true of the EOQ model? Note that the optimal order quantity,Q,will be called EOQ.

Accepted Answer

A)  If the annual sales, in units, increases by 20%, then EOQ will increase by 20%.
B)  If the average inventory increases by 20%, then the total carrying costs will increase by 20%.
C)  If the average inventory increases by 20% the total order costs will increase by 20%.
D)  The EOC is the same for all companies.
E)  If the fixed per order cost increases by 20%, then EOQ will increase by 20%.F) B) and E)
G) D) and E)

Exam 23: Advanced Issues in Cash Management and Inventory Control

For some firms,holding highly liquid marketable securities is a substitute for holding cash because a marketable securities portfolio can accomplish the same objective as cash.

Correct Answer
verified

The easier a firm's access to borrowed funds the higher its precautionary balances will be,in order to protect against sudden increases in interest rates.

Correct Answer
verified

If a company increases its safety stock,then its EOQ will go up.

Correct Answer
verified

Correct Answer
verified

During times of inflation,which of these inventory accounting methods is best for cash flow?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Which of the following is true of the EOQ model? Note that the optimal order quantity,Q,will be called EOQ.

Correct Answer
verified

Correct Answer
verified

Exam 23: Advanced Issues in Cash Management and Inventory Control

For some firms,holding highly liquid marketable securities is a substitute for holding cash because a marketable securities portfolio can accomplish the same objective as cash.

Correct AnswerverifiedShow Answer

The easier a firm's access to borrowed funds the higher its precautionary balances will be,in order to protect against sudden increases in interest rates.

Correct AnswerverifiedShow Answer

If a company increases its safety stock,then its EOQ will go up.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

During times of inflation,which of these inventory accounting methods is best for cash flow?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is true of the EOQ model? Note that the optimal order quantity,Q,will be called EOQ.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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