New Horizon

Question 1

WHAT is the Operating Cycle?

Answer 1

THE length of time it takes a company to complete normal operating activities

Hence, the operating cycle is equivalent to the average time that inventory is held plus the average time that receivables are held

Days Held Inventory + Days Held Receivables

Question 2

WHAT is an assumption associated with the Economic Order Quantity Formula?

Answer 2

Periodic Demand is Known; other assumptions included are:

(1) Demand is uniform
(2) order (setup) costs and carrying costs are constant, and
(3) no quantity discounts are allowed

Question 3

WHAT is the economic order quantity (EOQ) model?

Answer 3

A mathematical tool for determining the order quantity that minimizes the sum of ordering costs and carrying costs

Question 4

WHAT is the Cash Conversion Cycle?

Answer 4

THE amount of time that passes between the actual outlay of cash for inventory purchases and the collection of cash from the sale of that inventory

EQUATION: inventory conversion period, plus the average collection period, minus the payables deferral period

Question 5

WHAT are examples of Value Chain Business Functions?

Answer 5

Research and Development

Marketing

Customer Service

Question 6

WHAT effect does Safety Stock have on Economic Order Quantity?

Answer 6

NO Effect

WHY? - EOQ formula are periodic demand, cost per order, and the unit carrying cost for the period

NO mention of Safety Stock

Question 7

WHAT does the Economic Order Quantity Formula indicate?

Answer 7

THE Quantity of each individual order during the year

NOTE: This model minimizes the sum of inventory carrying costs and either ordering or production setup costs

Question 8

WHAT is the equation for the Conversion Cash Cycle?

Answer 8

Days Sales in Receivables + Days Sales in Inventory - Average Payable Period

Question 9

WHAT type of system is Materials requirements planning?

Answer 9

Materials requirements planning (MRP) is a push system;

i.e., the demand for raw materials is driven by the forecasted demand for the final product as programmed into the system

Question 10

WHAT is Derived Demand?

Answer 10

Demand driven by the demand for the final good

Question 11

WHAT Calculation would assist in determining the inventory reorder point?

Answer 11

THE Average Daily Usage

i.e. The reorder point is the amount of inventory on hand indicating that a new order should be placed

This is calculated as: (Average daily demand × Lead time in days) + Safety stock

Question 12

WHAT is the EQUATION for the Reorder Point?

Answer 12

This is calculated as: (Average daily demand × Lead time in days) + Safety stock

Question 13

WHAT is one likely result of using a lockbox?

Answer 13

THE increase in the Cash Conversion Cycle

WHY? - Because the lockbox will accelerate cash collections and decrease the average collection period

Hence - cash conversion cycle (average collection period + days’ sales in inventory – average payables period) will increase

Question 14

WHAT do the results of the Economic Order Quantity (EOQ) indicate?

Answer 14

THE quantity of each individual order during the year

i.e. the model minimizes the sum of inventory carrying costs and either ordering or production setup costs

Question 15

WHAT is the difference between Monopolistic Competition and Perfect Competition?

Answer 15

Monopolistic Competition produces a greater variety of products at a higher cost per unit

i.e. Firms in Monopolistic Competition sell differentiating products

Question 16

WHAT would cause inventory turnover to increase if sales and inventory were essentially unchanged?

Answer 16

THE Gross Profit Percentage Decreased

WHY? - Because a increase in Cost of Goods Sold increases the inventory turnover ratio

Thus, a decrease in the Gross Profit Percentage [(sales – cost of goods sold) ÷ sales] signifies a increase in Cost of Goods Sold

Question 17

WHAT ratio will increase if a wholesale creditor changed their terms from 1/15, n/45 to 2/15, n/45?

Answer 17

The Accounts Receivable Turnover Ratio

WHY? - Because the discount has been increase - customers will be more willing to take advantage of the discount which will increase cash barely but decrease A/R

Thus A/R (Denominator) will decrease and Net Credit Sales (Numerator) remain relatively unchanged the ratio will go up

Question 18

According to COSO, which enterprise risk management addresses entity’s high-level goals aligned with support of the mission?

Answer 18

Strategy

i.e. refers to a company’s high-level goals while supporting its mission

Question 19

WHAT is an example of a “Pull-System?”

Answer 19

JIT is a pull system that is demand-driven

Question 20

WHAT is an example of a “Push-System?”

Answer 20

Materials requirements planning (MRP) and Manufacturing Resource Planning (MRP II)

The demand for materials is driven by the forecasted demand for the final product as programmed into the system