Managing the relationship between current assets and current liabilities of a firm in order to improve the flow of funds is called__________. A. the business operating cycle B. the cash conversion cycle C. working capital management D. the production cycle Travel and Tow Trailers Inc. makes small trailers for light-duty towing behind SUVs and small pickup trucks. Its trailers typically sell for $2,500. Many of its customers have asked for credit terms to aid in purchasing the trailers. The firm's finance department has estimated the following profile for its light-duty trailers and customer base: Annual sales: 10,000 trailers Annual production costs per trailer: $1,500 Lost sales if credit is not provided for customers: 2,000 trailers Default rate if all customers purchase on credit: 3.00% What is the dollar value of bad debts the firm expects to accumulate over a year? Given this amount, what is the maximum average amount per customer that the firm should spend on credit screening? A. $450,000; $45.00 B. $450,000; $56.25 C. $4,500,000; $450.00 D. $4,500,000; $$562.50 The production cycle ___________ . A. is the period from the start of cash outflow for producing a product or service until the associated cash inflow materializes from the sale of that product or service B. begins at the time a firm first starts to make a product and lasts until the time the customer buys the product C. starts when production begins and ends with the collection of cash from the sale of the product D. starts when the customer takes delivery of the product and ends when the firm receives payment for the product Perfect Purchase Electronics Selected Income Statement Items, 2009 Cash Sales $1,500,000 Credit Sales $7,500,000 Total Sales $9,000,000 COGS $6,000,000 Perfect Purchase Electronics Selected Balance Sheet Accounts 12/31/2009 12/31/2008 Change Accounts Receivable $270,000 $240,000 $30,000 Inventory $125,000 $100,000 $25,000 Accounts Payable $110,000 $90,000 $20,000 Using the information provided, what is the accounts payable turnover for the firm? A. 15 times B. 60 times C. 75 times D. 90 times The __________ begins at the time a firm first starts to make a product and lasts until the time the customer buys the product. A. business operating cycle B. accounts receivable cycle C. cash conversion cycle D. production cycle Which of the following is NOT an inventory management technique? A. ABC B. 6 SIGMA C. JIT D. EOQ BarnBurner Music, a music publishing firm located in Tennessee, bills its clients on the first of the month. For example, any sale made in the month of July is billed August 1 and is due September 1. Clients traditionally pay as follows: 50% at the end of the first month, 40% at the end of the second month, 8% at the end of the third month, and 2% default on their bills. If accounts receivable are collected as anticipated, what is the last month in which January billings will be collected? First Quarter Actual Billings Second Quarter Anticipated Billings January February March April May June $88,000 $74,000 $96,000 $99,000 $82,000 $63,000 A. March B. April C. May D. June Travel and Tow Trailers Inc. makes small trailers for light-duty towing behind SUVs and small pickup trucks. Its trailers typically sell for $2,500. Many of its customers have asked for credit terms to aid in purchasing the trailers. The firm's finance department has estimated the following profile for its light-duty trailers and customer base: Annual sales: 10,000 trailers Annual production costs per trailer: $1,500 Lost sales if credit is not provided for customers: 2,000 trailers Default rate if all customers purchase on credit: 3.00% What is the change in the profit margin if the firm moves from a cash-only policy to a credit policy? A. $1,250,000 B. $8,000,000 C. $9,250,000 D. $15,000,000 The __________ starts at the time production begins and ends with the collection of cash from the sale of the product. A. accounts receivable cycle B. business operating cycle C. cash conversion cycle D. production cycle Of the following, which is NOT an accurate statement about the Economic Order Quantity (EOQ) model? A. The actual cost of the inventory item is ignored. B. Costs are divided into two categories: the cost of ordering and the cost of storage. C. EOQ is an attempt to determine the appropriate level of inventory. D. The EOQ assumes the sales rate fluctuates with seasonal changes In terms of the float, the buyer of a product wants to ________ and the seller wants to __________ . A. increase the collection float; decrease the disbursement float B. decrease the disbursement float; decrease the collection float C. decrease the collection float; decrease the disbursement float D. increase the disbursement float; decrease the collection float When a company deals only in cash, the cash conversion cycle becomes _________ . A. the collection cycle B. the payable cycle C. the production cycle D. the collection cycle - the payable cycle Using the information provided, what is the accounts receivable turnover for the firm? Perfect Purchase Electronics Selected Income Statement Items, 2009 Cash Sales $1,500,000 Credit Sales $7,500,000 Total Sales $9,000,000 COGS $6,000,000 Perfect Purchase Electronics Selected Balance Sheet Accounts 12/31/2009 12/31/2008 Change Accounts Receivable $270,000 $240,000 $30,000 Inventory $125,000 $100,000 $25,000 Accounts Payable $110,000 $90,000 $20,000 A. 23.53 times B. 29.41 times C. 53.33 times D. 60.00 times Using the information provided, what is the accounts payable cycle for the firm? Perfect Purchase Electronics Selected Income Statement Items, 2009 Cash Sales $1,500,000 Credit Sales $7,500,000 Total Sales $9,000,000 COGS $6,000,000 Perfect Purchase Electronics Selected Balance Sheet Accounts 12/31/2009 12/31/2008 Change Accounts Receivable $270,000 $240,000 $30,000 Inventory $125,000 $100,000 $25,000 Accounts Payable $110,000 $90,000 $20,000 A. 4.06 days B. 4.87 days C. 6.08 days D. 24.33 days Lipscomb is set to establish a reorder policy for his remote snack bar located on Vacation Island. He sells 10 cases of soda per day and has a lead-time for delivery of one week. Occasionally, bad weather or mechanical difficulty can delay his delivery by up to three days. At what point should Lipscomb reorder (how many cases on hand) if he wants to also compensate for unexpected order delays? A. 30 cases B. 70 cases C. 100 cases D. There is not enough information to answer this question Jolly Roger Kite Company has a payment cycle of 17 days, a collection cycle of 31 days, and a production cycle of 12 days. What is the average cash conversion cycle for the Jolly Roger Company? A. 2 days B. 36 days C. 26 days D. 60 days BarnBurner Music, a music publishing firm located in Tennessee, bills its clients on the first of the month. For example, any sale made in the month of July is billed August 1 and is due September 1. Clients traditionally pay as follows: 50% at the end of the first month, 40% at the end of the second month, 8% at the end of the third month, and 2% default on their bills. The firm's CEO wants to know the anticipated cash flow for April. Use the following information to estimate April cash flows. First Quarter Actual Billings Second Quarter Anticipated Billings January February March April May June $88,000 $74,000 $96,000 $99,000 $82,000 $63,000 A. $96,000 B. $77,600 C. $84,640 D. $99,000 Using the information provided, what is the length of the production cycle for the firm? Perfect Purchase Electronics Selected Income Statement Items, 2009 Cash Sales $1,500,000 Credit Sales $7,500,000 Total Sales $9,000,000 COGS $6,000,000 Perfect Purchase Electronics Selected Balance Sheet Accounts 12/31/2009 12/31/2008 Change Accounts Receivable $270,000 $240,000 $30,000 Inventory $125,000 $100,000 $25,000 Accounts Payable $110,000 $90,000 $20,000 A. 6.08 days B. 7.60 days C. 53.33 days D. 6.84 days Which of the following is NOT true of the cash conversion cycle? A. It is the net period from the start of cash outflow for producing a product or service until the associated cash inflow materializes from the sale of that product or service. B. Cash Conversion Cycle = Production Cycle + Collection Cycle - Payment Cycle C. Cash Conversion Cycle = Production Cycle + Collection Cycle + Payment Cycle D. The cash conversion cycle essentially measures how quickly a company can convert its products or services into cash  |
