Working capital 1

Question 1

A working capital technique that delays cash outflow

Answer 1

A draft.

Reduces cash disbursement and increases payable float.

Question 2

Cost of credit formula / APR of quick payment discount

Answer 2

360/ pay period - discount period X Discount/ 100 - Discount %

Question 3

An inventory management technique that projects and plans inventory levels in order to control the usage of raw materials in the production process

Answer 3

Materials requirements planning

Question 4

Inventory amounts held on stock would decrease in which conditions?

Answer 4

Variability of sales decreases

Cost of running out of stock decreases

Length of time that goods are in transit decreases

Question 5

Inventory held on hand would increase when?

Answer 5

When carrying cost decrease

Question 6

Economic order quantity (EOQ)

Answer 6

anticipates orders at the point where carrying costs are nearest to restocking costs. Objective is to minimize total inventory cost.

Question 7

EOQ formula assumes that

Answer 7

• Periodic demand is known.

- Annual sales volume is a crucial variable in the formaula

Question 8

TRUE/FALSE?

The cost of not taking a cash discount is generally higher than the cost of a bank loan

Answer 8

True

Question 9

Reorder costs do not impact

Answer 9

The level of safety stock

Question 10

Reorder point formula

Answer 10

Safety stock + ( Lead time X Sales during lead time)

Question 11

Inspections are part of what cost?

Answer 11

Order cost

Question 12

Inventory carry cost include

Answer 12

• Insurance
• Obsolescence and spoilage
• Opportunity cost on inventory investment
• Cost of capital invested in the inventory

Question 13

In the EOQ model order costs consist primarily of

Answer 13

Production set-up

Question 14

The following financial instruments generally provides the largest source of short-term credit for small firms

Answer 14

Trade credit

Question 15

What provides a spontaneous source of financing for a firm?

Answer 15

Accounts payable

Question 16

Trade credit is

Answer 16

Subject to risk of buyer default

Question 17

In the SCOR (Supply Chain Operations Reference) model what are the key activities pertaining to the supply chain analysis?

Answer 17

Plan
Source
Make
Deliver

Question 18

(SCOR) Describe Planning stage

Answer 18

Developing a way to manage supply and demand within the goals and objectives of the firm. As well as plan for necessary infrastructure.

Question 19

Just-in-time (JIT) inventory purchasing system

Answer 19

• relies on suppliers to deliver products when needed
• Increases the likelihood of the company running out of inventory
• decreases inventory holding cost
• reduces set-up time
• increases inventory turnover and number of days sales to sell goes down as well as cash conversion cycle

Question 20

Variability in lead times affect safety stock in what way?

Answer 20

It increase safety stock in order to reduce the risk of stock outs.