Multiple-Choice Quiz

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Chapter 10:   Accounts Receivable and Inventory Management

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1. A firm's inventory turnover (IT) is 5 times on a cost of goods sold (COGS) of $800,000. If the IT is improved to 8 times while the COGS remains the same, a substantial amount of funds is released from or additionally invested in inventory. In fact,

$160,000 is released.

$100,000 is additionally invested.

$60,000 is additionally invested.

$60,000 is released.

2. Ninety-percent of Vogel Bird Seed's total sales of $600,000 is on credit. If its year-end receivables turnover is 5, the average collection period (based on a 365-day year) and the year-end receivables are, respectively:

365 days and $108,000.

73 days and $120,000.

73 days and $108,000.

81 days and $108,000.

3. If EOQ = 360 units, order costs are $5 per order, and carrying costs are $.20 per unit, what is the usage in units?

129,600 units

2,592 units

25,920 units

18,720 units

4. Costs of not carrying enough inventory include:

lost sales.

customer disappointment.

possible worker layoffs.

all of these.

5. Which of the following relationships hold true for safety stock?

the greater the risk of running out of stock, the smaller the safety of stock.
the larger the opportunity cost of the funds invested in inventory, the larger the safety

the greater the uncertainty associated with forecasted demand, the smaller the safety

the higher the profit margin per unit, the higher the safety stock necessary.

6. Increasing the credit period from 30 to 60 days, in response to a similar action taken by all of our competitors, would likely result in:

an increase in the average collection period.

a decrease in bad debt losses.

an increase in sales.

higher profits.

7. The credit policy of Spurling Products is "1.5/10, net 35." At present 30% of the customers take the discount, 62% pay within the net period, and the rest pay within 45 days of invoice. What would receivables be if all customers took the cash discount?

Lower than the present level.

No change from the present level.

Higher than the present level.

Unable to determine without more information.

8. An increase in the firm's receivable turnover ratio means that:

it is collecting credit sales more quickly than before.

cash sales have decreased.

it has initiated more liberal credit terms.

inventories have increased.

9. Receiving a required inventory item at the exact time needed.





10. EOQ is the order quantity that          over our planning horizon.

minimizes total ordering costs

minimizes total carrying costs

minimizes total inventory costs

the required safety stock

11. A B2B exchange is a          Internet marketplace that matches supply and demand by real-time auction bidding.





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