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Multiple choice questions

Try the multiple choice questions below to test your knowledge of Chapter 10. Once you have completed the test, click on 'Submit Answers for Grading' to get your results.

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This activity contains 20 questions.

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


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Question 2.
Sixty percent of Basket Wonders' annual sales of $900,000 is on credit. If its year-end receivables turnover is 4.5, the average collection period and the year-end receivables are, respectively __________. (Assume a 365-day year.)


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Question 3.
If EOQ = 40 units, order costs are $2 per order, and carrying costs are $.20 per unit, what is the usage in units?


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Question 4.
If EOQ = 1,000 units, order costs are $200 per order, and sales total 5,000 units, what is the carrying cost per unit?


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


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Question 6.
Which ratio might you be the most concerned with in analyzing a firm's financial leverage position?


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Question 7.
The credit policy of Milwaukee Brewski Breweries is 1/10, net 30. At present 25% of the customers take the discount. What would accounts receivable be if all customers took the cash discount?


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Question 8.
A decrease in the firm's receivable turnover ratio means that __________.


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Question 9.
Which of the following best represents the total inventory costs, T, where S is total usage of the inventory item for the period, Q is the quantity, O is cost per order, and C is carrying costs per unit for the period?


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Question 10.
Which of the following statements is most correct about inventory management?


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Question 11.
__________ represents one quantitative approach that has been developed to estimate the ability of businesses (and individuals) to service credit granted to them.


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Question 12.
What do we call it when a firm extends credit terms that encourage the buyers of certain products to take delivery before the peak sales period and to defer payment until after the peak sales period?


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Question 13.

Eclipse Ellipticals, Inc., is considering a change in their credit terms. The firm is considering offering a 1.5% discount. Most likely competitors will follow suit, so sales will remain at $1 million and 40% of sales will be eligible to take advantage of the discount. The firm anticipates that receivables will be reduced by $30,000 and the firm has an opportunity cost of 18%. Should the firm change its credit terms?

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Question 14.
Place the methods of collecting on delinquent accounts from the most likely lowest to highest cost.


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Question 15.
Cohn's Marine Supply Company has a Dun & Bradstreet composite rating of "CC1," while Woatich.com, Inc., has a composite rating of "5A4." Which of the following statements is correct?


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Question 16.
A system used to decide whether to grant credit by assigning a numerical value that is related to the creditworthiness of the applicant is a(n) __________.


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Question 17.
You have just taken a job in the credit department of that hot, new Internet firm, BurnRate.com. You just finished calling a bank in which a credit applicant has an account and just asked a bank representative to give you the average cash balance carried by this credit applicant.


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Question 18.

A firm currently sells $500,000 annually with 3% bad debt losses. Two alternative policies are available. Policy A would increase sales by $300,000, but bad debt losses on additional sales would be 8%. Policy B would increase sales by an additional $120,000 over Policy A and bad debt losses on the additional $120,000 of sales would be 15%. The average collection period will remain at 60 days (6 turns per year) no matter the policy decision made. The profit margin will be 20% of sales and no other expenses will increase. Assume an opportunity cost of 20%.

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Question 19.
Which of the following best represents the optimal economic order quantity (EOQ), where total usage of the inventory item is 100,000 units for the planning period, the cost per order is $180, and the carrying costs per unit for each period is $1?


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Question 20.
Which of the following statements is correct regarding inventory if there were an inventory outage?


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