Financial Management - Chapter 20 Credit and Inventory Management

Chapter 20 Credit and Inventory Management

 

1.

Blackwell Brothers sells men's suits. The store offers a 1 percent discount if payment is received within 10 days. Otherwise, payment is due within 30 days. This credit offering is referred to as the:    A.  terms of sale. B.  credit analysis. C.  collection policy. D.  payables policy. E.  collection float. Refer to section 20.1

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-01 How firms manage their receivables and the basic components of a firm's credit policies. Section: 20.1 Topic: Terms of sale

2.

Jillian was recently hired by a major retail store. Her job is to determine the probability that individual customers will fail to pay for their charge sales. Jillian's job best relates to which one of the following?    A.  terms of sale B.  credit analysis C.  collection policy D.  payables policy E.  customer service Refer to section 20.1

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-01 How firms manage their receivables and the basic components of a firm's credit policies. Section: 20.1 Topic: Credit analysis

3.

Town Hardware sells goods on credit with payment due 30 days after purchase. If payment is not received by the 30th day, the store mails a friendly reminder to the customer. If payment is not received by the 45th day, the store calls the customer and requests payment and also stops offering credit to that customer. These procedures are referred to as the store's:    A.  customer service policy. B.  credit policy. C.  collection policy. D.  payables policy. E.  disbursements policy. Refer to section 20.1

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-01 How firms manage their receivables and the basic components of a firm's credit policies. Section: 20.1 Topic: Collection policy

4.	Phil's Print Shop grants its customers the right to pay for their print jobs within 30 days of the date of service. This 30-day period is referred to as the:    A.  payables period. B.  cash cycle. C.  transactions period. D.  credit period. E.  disbursement period. Refer to section 20.2

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-01 How firms manage their receivables and the basic components of a firm's credit policies. Section: 20.2 Topic: Credit period

5.	Scott purchased a shovel, a rake, and a wheelbarrow from The Local Hardware Store yesterday. Today, the store issued a bill for these items and mailed it to Scott. What is the name given to this bill?    A.  ledger statement B.  warranty C.  indenture D.  receipt E.  invoice Refer to section 20.2

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-01 How firms manage their receivables and the basic components of a firm's credit policies. Section: 20.2 Topic: Invoice

6.	Geoff Industries offers its credit customers a 2 percent discount if they pay within 10 days. This discount is referred to as a:    A.  cash discount. B.  purchase discount. C.  collection discount. D.  market discount. E.  receivables discount. Refer to section 20.2

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-01 How firms manage their receivables and the basic components of a firm's credit policies. Section: 20.2 Topic: Cash discounts

7.	Any written proof that a customer owes you money for goods or services provided is referred to as a(n):    A.  account document. B.  sales draft. C.  credit instrument. D.  commercial paper. E.  letter of debt. Refer to section 20.2

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-01 How firms manage their receivables and the basic components of a firm's credit policies. Section: 20.2 Topic: Credit instruments

8.

You are viewing a graph which compares costs with the amount of credit extended. Both the carrying costs and the opportunity costs of credit are depicted. What is the function called that represents the summation of these carrying and opportunity costs?    A.  opportunity cost curve B.  credit extension curve C.  credit cost curve D.  terms of sale graph E.  optimal sales graph Refer to section 20.4

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-02 How to analyze the decision by a firm to grant credit. Section: 20.4 Topic: Credit cost curve

9.

Assume that RSF is a wholly-owned subsidiary of the Rolled Steel Company. RSF provides credit financing solely for large ticket items purchased from the Rolled Steel Company. Which one of the following terms describes RSF?    A.  credit department B.  parent company C.  captive finance company D.  credit union E.  service unit Refer to section 20.4

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-02 How to analyze the decision by a firm to grant credit. Section: 20.4 Topic: Captive finance company

10.

The basic factors to be evaluated in the credit evaluation process, the five Cs of credit, are:    A.  conditions, control, cessation, capital, and capacity. B.  conditions, character, capital, control, and capacity. C.  capital, collateral, control, character, and capacity. D.  character, capacity, control, cessation, and collateral. E.  character, capacity, capital, collateral, and conditions. Refer to section 20.5

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-02 How to analyze the decision by a firm to grant credit. Section: 20.5 Topic: Five Cs of credit

11.

Roger's Home Appliances offers credit to customers it deems worthy of this privilege. To determine if a customer is worthy, the firm computes a numerical value which is used to estimate the probability that the customer will default if credit is granted to them. The process of computing this numerical value is referred to as:    A.  credit scoring. B.  credit capacity. C.  receipts assessment. D.  conditions for credit. E.  consumer analysis. Refer to section 20.5

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-02 How to analyze the decision by a firm to grant credit. Section: 20.5 Topic: Credit scoring

12.

You have recently been hired as an accounting intern for Jefferson Mills. The job that you have been assigned for today is to compile a spreadsheet that has six columns. The column headings are: Invoice #; Customer name; < 30 days; 31-60 days; 61-90 days; > 90 days. You are to list every unpaid invoice by customer name with the amount owed entered into the appropriate column for the number of days between the sale date and today. Once you have completed that, you are to sort the report by customer name and then total the amounts listed in each column. What is this report called?    A.  credit report B.  aging schedule C.  risk assessment report D.  turnover delineation E.  receivables consolidation report Refer to section 20.6

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-02 How to analyze the decision by a firm to grant credit. Section: 20.6 Topic: Aging schedule

13.

Bill is in charge of the inventory for Home Builder's Supply. As an inventory item gets low, he is to restock the item by a quantity that minimizes the total inventory costs for that item. 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 Refer to section 20.8

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-04 How to determine the costs of carrying inventory and the optimal inventory level. Section: 20.8 Topic: Economic reorder quantity

14.

Allison has developed a set of procedures for determining the amount of each raw material that she needs to have in inventory if she is to keep her firm's 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 Refer to section 20.8

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-04 How to determine the costs of carrying inventory and the optimal inventory level. Section: 20.8 Topic: Materials requirements planning

15.	Which one of the following is a system for managing demand-dependent inventories that minimizes the inventory levels of a firm?    A.  just-in-time inventory B.  turnover planning C.  net working capital planning D.  inventory scoring E.  inventory ranking Refer to section 20.8

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-04 How to determine the costs of carrying inventory and the optimal inventory level. Section: 20.8 Topic: Just-In-Time inventory

16.	The terms of sale generally include which of the following? I. type of credit instrument II. cash discount III. credit period IV. discount period    A.  I and III only B.  II and IV only C.  III and IV only D.  II, III, and IV only E.  I, II, III, and IV Refer to section 20.1

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-01 How firms manage their receivables and the basic components of a firm's credit policies. Section: 20.1 Topic: Terms of sale

17.

What is the primary purpose of credit analysis?    A.  determine the optimal credit period B.  establish the effectiveness of granting a cash discount C.  determine the optimal discount period, if any D.  access the frequency and amount of sales by customer E.  evaluate whether or not a customer will pay Refer to section 20.1

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-01 How firms manage their receivables and the basic components of a firm's credit policies. Section: 20.1 Topic: Credit analysis

18.	The period of time that extends from the day a credit sale is made until the day the bank credits a firm's account with the payment for that sale is known as the _____ period.    A.  float B.  cash collection C.  sales D.  accounts receivable E.  discount Refer to section 20.1

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-01 How firms manage their receivables and the basic components of a firm's credit policies. Section: 20.1 Topic: Accounts receivable period

19.

Which one of the following will increase a firm's investment in accounts receivables?    A.  a decrease in the number of days for which credit is granted B.  a decrease in credit sales C.  an increase in cash sales D.  a decrease in the average collection period E.  an increase in average daily credit sales Refer to section 20.1

AACSB: Analytic Blooms: Understand Difficulty: 1 Easy Learning Objective: 20-01 How firms manage their receivables and the basic components of a firm's credit policies. Section: 20.1 Topic: Investment in receivables

20.

A firm's total investment in receivables depends primarily on the firm's:    A.  total sales and cash discount period. B.  cash to credit sales ratio. C.  bad debt ratio. D.  average collection period and amount of credit sales. E.  amount of credit sales and cash discount percentage. Refer to section 20.1

AACSB: Analytic Blooms: Understand Difficulty: 1 Easy Learning Objective: 20-01 How firms manage their receivables and the basic components of a firm's credit policies. Section: 20.1 Topic: Investment in receivables

21.

Which one of the following time periods is included in the accounts receivable period but not in the cash collection period?    A.  the period of time between the receipt of a check and the availability of those funds B.  time it takes a firm to process incoming receipts C.  period of time a check is in the mail D.  the amount of time that it takes a bank to credit a firm's account for a deposit made E.  period of time it takes an invoice to reach a customer by mail Refer to section 20.1

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-01 How firms manage their receivables and the basic components of a firm's credit policies. Section: 20.1 Topic: Investment in receivables

22.

Which one of the following statements is correct if you purchase an item with credit terms of 1/5, net 15?    A.  If you pay within 1 day, you will receive a 5 percent discount. B.  If you pay within 5 days, you will receive a 1 percent discount. C.  If you do not pay within 15 days, you will be charged interest at a 1.5 percent monthly rate. D.  If you pay within 15 days, you will receive a 1/5th percent discount. E.  You must pay the discounted amount within 15 days. Refer to section 20.2

AACSB: Analytic Blooms: Understand Difficulty: 1 Easy Learning Objective: 20-01 How firms manage their receivables and the basic components of a firm's credit policies. Section: 20.2 Topic: Terms of sale

23.	You are doing some comparison shopping. Five stores offer the product you want at basically the same price. Which one of the following stores offers the best credit terms if you plan on taking the discount?        A.  store A B.  store B C.  store C D.  store D E.  store E Refer to section 20.2

AACSB: Analytic Blooms: Understand Difficulty: 1 Easy Learning Objective: 20-01 How firms manage their receivables and the basic components of a firm's credit policies. Section: 20.2 Topic: Terms of sale

24.	You are doing some comparison shopping. Five stores offer the product you want at basically the same price. Which one of the following stores offers the best credit terms if you plan to forego the discount?        A.  store A B.  store B C.  store C D.  store D E.  store E Refer to section 20.2

AACSB: Analytic Blooms: Understand Difficulty: 1 Easy Learning Objective: 20-01 How firms manage their receivables and the basic components of a firm's credit policies. Section: 20.2 Topic: Terms of sale

25.

Which one of the following statements is correct?    A.  The credit period begins when the discount period ends. B.  The discount period is the length of time granted to a customer to pay for a purchase. C.  The credit period begins on the invoice date. D.  With terms of 2/10, net 30, the net credit period is 20 days. E.  With EOM dating, all sales are assumed to have occurred on the 15th of each month. Refer to section 20.2

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-01 How firms manage their receivables and the basic components of a firm's credit policies. Section: 20.2 Topic: Credit period

26.

Which two of the following are the key considerations for a seller who is establishing the length of the credit period being offered to a customer? I. seller's operating cycle II. customer's operating cycle III. seller's inventory period IV. customer's inventory period    A.  I and II B.  II and III C.  III and IV D.  II and IV E.  I and IV Refer to section 20.2

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-01 How firms manage their receivables and the basic components of a firm's credit policies. Section: 20.2 Topic: Credit period

27.	Which one of the following factors tends to favor longer credit periods?    A.  high consumer demand B.  lower priced merchandise C.  increased credit risk D.  merchandise with low collateral value E.  increased competition Refer to section 20.2

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-01 How firms manage their receivables and the basic components of a firm's credit policies. Section: 20.2 Topic: Credit period

28.

Which one of the following statements is correct in regards to credit periods?    A.  Perishable items tend to have longer credit periods. B.  Items with low markups tend to have longer credit periods. C.  Smaller accounts tend to have longer credit periods. D.  Different customers may be offered different credit periods by the same firm. E.  Newer products tend to have shorter credit periods. Refer to section 20.2

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-01 How firms manage their receivables and the basic components of a firm's credit policies. Section: 20.2 Topic: Credit period

29.

A cash discount of 2/5, net 30:    A.  grants customers 30 days to pay after the discount period expires. B.  offers customers a maximum of 30 days credit. C.  grants free credit for a period of 30 days. D.  charges a higher price to a cash customer than to a customer who pays in 2 days. E.  grants customers 2 days to pay if they want the 5 percent discount. Refer to section 20.2

AACSB: Analytic Blooms: Understand Difficulty: 1 Easy Learning Objective: 20-01 How firms manage their receivables and the basic components of a firm's credit policies. Section: 20.2 Topic: Cash discounts

30.

Under credit terms of 1/5, net 15, customers should:    A.  always pay on the 15th day. B.  take the 5 percent discount and pay immediately. C.  take the discount and pay on the day following the day of sale. D.  either take the discount or pay on the 15th day. E.  both take the discount and pay on the 15th day. Refer to section 20.2

AACSB: Analytic Blooms: Understand Difficulty: 1 Easy Learning Objective: 20-01 How firms manage their receivables and the basic components of a firm's credit policies. Section: 20.2 Topic: Cash discounts

31.

A 2/10, net 30 credit policy:    A.  is an expensive form of short-term credit if a buyer foregoes the discount. B.  provides cheap financing to the buyer for 30 days. C.  is an inexpensive means of reducing the seller's collection period if every customer takes the discount. D.  tends to have little effect on the seller's collection period. E.  tends to increase a firm's investment in receivables as compared to a straight net 30 policy. Refer to section 20.2

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-01 How firms manage their receivables and the basic components of a firm's credit policies. Section: 20.2 Topic: Cost of credit

32.	The Green Hornet offers a trade discount with terms of 2/5, EOM. Assume you purchase an item on credit from The Green Hornet on Monday, November 3. What is the invoice date for this purchase?    A.  November 3 B.  November 5 C.  November 7 D.  November 8 E.  November 30 Refer to section 20.2

AACSB: Analytic Blooms: Understand Difficulty: 1 Easy Learning Objective: 20-01 How firms manage their receivables and the basic components of a firm's credit policies. Section: 20.2 Topic: Trade discount

33.	Which one of the following credit instruments is commonly used in international commerce?    A.  open account B.  sight draft C.  time draft D.  banker's acceptance E.  promissory note Refer to section 20.2

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-01 How firms manage their receivables and the basic components of a firm's credit policies. Section: 20.2 Topic: Credit instruments

34.

A conditional sales contract:    A.  passes title to the goods sold to the buyer at the time the contract is signed. B.  normally calls for one lump sum payment on the contract payment date. C.  generally has a built-in interest cost. D.  is payable immediately upon receipt. E.  is a formal bid for a project. Refer to section 20.2

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-01 How firms manage their receivables and the basic components of a firm's credit policies. Section: 20.2 Topic: Credit instruments

35.

Which of the following statements correctly reflect the effects of granting credit to customers? I. Total revenues may increase if both the quantity sold and the price per unit increase when credit is granted. II. A firm's cash cycle generally increases if credit is granted, all else equal. III. Both the cost of default and the cost of discounts must be considered before granting credit. IV. A firm may have to increase its long-term borrowing if it decides to grant credit to its customers.    A.  I, II, and III only B.  II, III, and IV only C.  I, III, and IV only D.  I, II, and IV only E.  I, II, III, and IV Refer to section 20.3

AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Learning Objective: 20-02 How to analyze the decision by a firm to grant credit. Section: 20.3 Topic: Credit policy effects

36.

You are considering switching from an all cash credit policy to a net 30 credit policy. You do not expect the switch to affect either your sales quantity or your sales price. Ignoring interest and assuming that every month has 30 days, your net present value of the switch will be equal to:    A.  zero. B.  your selling price per unit. C.  your selling price per unit multiplied by -1. D.  your selling price per unit multiplied by -30. E.  your total monthly sales multiplied by -1. Refer to section 20.3

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-02 How to analyze the decision by a firm to grant credit. Section: 20.3 Topic: Evaluating credit policy

37.

The optimal amount of credit equates the incremental costs of carrying the increase in accounts receivable to the incremental:    A.  decrease in the cash cycle. B.  benefit from decreasing the inventory level. C.  cash flows from increased sales. D.  increase in bad debts. E.  gain in net profits. Refer to section 20.4

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-02 How to analyze the decision by a firm to grant credit. Section: 20.4 Topic: Optimal amount of credit

38.

When credit policy is at the optimal point, the:    A.  total costs of granting credit will be maximized. B.  carrying costs of credit will be equal to zero. C.  opportunity cost of credit will be equal to zero. D.  carrying costs will equal the opportunity costs. E.  total costs will equal the opportunity costs. Refer to section 20.4

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-02 How to analyze the decision by a firm to grant credit. Section: 20.4 Topic: Optimal credit policy

39.	If you extend credit for a one-time sale to a new customer you risk an amount equal to:    A.  the sales price of the item sold. B.  the variable cost of the item sold. C.  the fixed cost of the item sold. D.  the profit margin on the item sold. E.  zero. Refer to section 20.5

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-02 How to analyze the decision by a firm to grant credit. Section: 20.5 Topic: Credit analysis

40.

Which one of the following statements is correct?    A.  If the majority of a firm's new customers become repeat customers then there is a strong argument against extending credit even if the default rate is low. B.  A customer's past payment history reveals little information in relation to his or her future tendency to pay. C.  A suggested policy for offering credit to new customers is to limit the amount of their initial credit purchase. D.  The risk of issuing credit is the same for a new customer as it is for an existing customer. E.  The recommended credit policy for new customers is to extend the maximum amount of credit you will ever be willing to offer as an enticement to get their business. Refer to section 20.5

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-02 How to analyze the decision by a firm to grant credit. Section: 20.5 Topic: Credit analysis

41.

Which of the following are frequently used as sources of information when trying to ascertain the creditworthiness of a customer? I. payment history with similar firms II. credit reports III. financial statements IV. information provided by a bank    A.  I and III only B.  II and IV only C.  I and II only D.  I, II, and III only E.  I, II, III, and IV Refer to section 20.5

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-02 How to analyze the decision by a firm to grant credit. Section: 20.5 Topic: Credit information

42.

When evaluating the creditworthiness of a customer, the term character refers to the:    A.  nature of the cash flows of the customer's business. B.  customer's financial resources. C.  types of assets the customer wants to pledge as collateral. D.  customer's willingness to pay bills in a timely fashion. E.  nature of the customer's line of work. Refer to section 20.5

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-02 How to analyze the decision by a firm to grant credit. Section: 20.5 Topic: Five Cs of credit

43.	Which one of the five Cs of credit refers to a firm's financial reserves?    A.  character B.  capacity C.  collateral D.  conditions E.  capital Refer to section 20.5

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-02 How to analyze the decision by a firm to grant credit. Section: 20.5 Topic: Five Cs of credit

44.	Which one of the five Cs of credit refers to the general economic situation in the customer's line of business?    A.  capacity B.  character C.  conditions D.  capital E.  collateral Refer to section 20.5

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-02 How to analyze the decision by a firm to grant credit. Section: 20.5 Topic: Five Cs of credit

45.

Which one of the following statements is correct?    A.  An aging schedule helps identify those customers who are the most delinquent. B.  The percentage of total receivables that falls within a certain time period on an aging schedule will remain constant over time even if the firm has seasonal sales. C.  Normally firms call their delinquent customers prior to sending them a past due letter. D.  A constant average collection period over a period of time is cause for concern. E.  It is common practice when a customer files for bankruptcy to sell that customer's receivable at face value. Refer to section 20.6

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-02 How to analyze the decision by a firm to grant credit. Section: 20.6 Topic: Collection policy

46.

Which one of the following inventory items is probably the least liquid?    A.  plywood held in inventory by a home builder B.  a wheel barrow held in inventory by a garden center C.  a partially assembled interior for a new vehicle D.  a set of tires owned by an automobile manufacturer E.  a toy owned by a retail toy store Refer to section 20.7

AACSB: Analytic Blooms: Understand Difficulty: 1 Easy Learning Objective: 20-03 The types of inventory and inventory management systems used by firms. Section: 20.7 Topic: Inventory types

47.	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 drilling press E.  a partially built modular home Refer to section 20.7

AACSB: Analytic Blooms: Understand Difficulty: 1 Easy Learning Objective: 20-03 The types of inventory and inventory management systems used by firms. Section: 20.7 Topic: Inventory types

48.	Which one of the following inventory-related costs is considered a shortage cost?    A.  storage costs B.  insurance cost C.  cost of safety reserves D.  obsolescence cost E.  opportunity cost of capital used for inventory purchases Refer to section 20.7

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-04 How to determine the costs of carrying inventory and the optimal inventory level. Section: 20.7 Topic: Inventory costs

49.

The ABC approach to inventory management is based on the concept that:    A.  inventory should arrive just in time to be used. 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 the inventory items probably represents a large percentage of the inventory cost. E.  one-third of a year's inventory need should be on hand, another third should be on order, and the last third should not be ordered yet. Refer to section 20.8

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-03 The types of inventory and inventory management systems used by firms. Section: 20.8 Topic: Inventory management techniques

50.

The EOQ model is designed to determine how much:    A.  total inventory a firm needs in any one year. B.  total inventory costs will be for any one given year. C.  inventory should be purchased at a time. D.  inventory will be sold per day. E.  a firm loses in sales per day when an inventory item is depleted. Refer to section 20.8

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-04 How to determine the costs of carrying inventory and the optimal inventory level. Section: 20.8 Topic: Economic order quantity

51.

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. Refer to section 20.8

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-04 How to determine the costs of carrying inventory and the optimal inventory level. Section: 20.8 Topic: Economic order quantity

52.	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. Refer to section 20.8

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-04 How to determine the costs of carrying inventory and the optimal inventory level. Section: 20.8 Topic: Economic order quantity

53.

Which one of the following items is most likely a derived-demand inventory item?    A.  cereal ready to be bagged and shipped to stores B.  tires held in inventory by an auto maker C.  shoes on display in a retail store D.  toys ready to be shipped to toy stores E.  wheat harvested by a farmer Refer to section 20.8

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-03 The types of inventory and inventory management systems used by firms. Section: 20.8 Topic: Derived-demand inventory

54.

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. Refer to section 20.8

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 20-03 The types of inventory and inventory management systems used by firms. Section: 20.8 Topic: Derived-demand inventory