Working Capital Management Flashcards

1
Q

LIFO uses lower of cost or _______

FIFO & Weighted Average use lower of cost or _______

A

LIFO - Lower of cost or Market

FIFO & WA - Lower of cost of NRV

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2
Q

What represents the median value of the item’s replacement cost, market ceiling and market floor?

A

Market value

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3
Q

What is the market ceiling and what is the market floor?

A

Ceiling - NRV

Floor - NRV - Profit

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4
Q

What is the net selling price minus the cost to complete and dispose?

A

Net Realizable Value

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5
Q

What type of system has inventory quantities determined by physical counts performed at least annually?

A

Periodic inventory systems

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6
Q

What type of system has inventory balances updated for each purchases and each sales and is always current?

A

Perpetual inventory system

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7
Q

What type of system has the cost of each item in inventory uniquely identified?

A

Specific identification

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8
Q

If using the FIFO method and prices are rising, what happens to COGS and Ending Inventory?

A

COGS goes down and Ending Inventory goes up

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9
Q

If using the LIFO method and prices are rising, what happens to COGS and Ending Inventory?

A

COGS goes up and Ending Inventory goes down

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10
Q

Formula to calculate the Average Cost Per Unit that is used in the weighted average method:

A

COGAFS / # of Units

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11
Q

The weighted average method only works with what type of inventory system?

A

Periodic

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12
Q

The moving average method only works with what type of inventory system?

A

Perpetual

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13
Q

If COGS increases, what happens to Net Income?

A

Net Income decreases

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14
Q

What is the most important factor to influencing inventory levels?

A

Accuracy of sales forecasts

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15
Q

Too much inventory results in______

Too little inventory results in ______

A

Too much = increase in carrying costs

Too little = loss of sales

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16
Q

To ensure that manufacturing or customer supply requirements are met, companies maintain what?

A

A safety stock

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17
Q

Formula for calculating the reorder point:

A

Safety stock + (lead time X sales during lead time)

18
Q

Formula for calculating the Economic Order Quantity (EOC):

A

Order Size = square root of (2 X Sales in units X Cost per Purchase Order) / Carrying Cost per unit

19
Q

The Economic Order Quantity (EOC) attempts to do what?

A

Minimize total ordering and carrying costs

20
Q

Just in time inventory model was developed to:

A

Reduce the lag time between inventory arrival and use. It resulted the need of manufacturers to carry large inventory’s and requires a considerable degree of coordination between manufacturer and supplier.

21
Q

Kansan inventory control techniques give:

A

Visual signals that it is time to reorder

22
Q

Integrated supply chain management (ISCM) exists when:

A

A firm and the entire supply chain are able to reasonably predict the expected demand of consumers for a product and then plan accordingly to meet that demand

23
Q

What are the four key core activities pertaining to SCOR (Supply Chain Operations Reference Model):

A

Plan
Source
Make
Deliver

24
Q

What generally provide the largest source of short-term credit for small firms?

A

Trade Credits (or accounts payable)

25
Wha represent routine transactions that remain unpaid at the end of an accounting period purely asa result of timing?
Accruals
26
How to calculate the APR of quick payment discounts:
(360 / (Pay Period - Discount Period)) X (Discount % / (100% - Discount %))
27
What are some motives for holding cash?
Transaction motive: meet payments arising from ordinary course of business Speculative motive: take advantage of temporary opportunities Precautionary motive: maintain a safety cushion to meet unexpected needs
28
A disadvantage for holding on to cash could be:
Negative arbitrage: interest obligations exceed interest income
29
What’s the primary method for increase cash levels:
Reducing the operating cycle (selling and collecting quickly) by either speeding up cash inflows or slowing down cash outflows
30
One of the major determinants of demand fora firm’s products or services along with price, product quality, and advertising is:
Credit Policy
31
Credit policy variables include:
Credit period: length of time buyers are given to pay for their purchases Credit standards: financial strength of credit customers Collection policy: stringency or laxity in collecting delinquent accounts Discounts: percentage and period
32
Method to speed up cash collections include:
Customer screening ad credit policy Prompt billing Payment discounts
33
2 ways to expedited credit sales in a timely manner are through the use of:
Electronic funds transfers | Lockbox systems
34
Turning over the collection of accounts receivable to a third-party facto in exchange for a discounted short-term loan is called:
Factoring | Cash is then collected immediately from the factor rather than from the customer
35
An external credit enhancement used by a company issuing otherwise unsecured debt to enhance its credit or can be required by a creditor to ensure payment is a:
Letter of credit
36
A revolving loan with a bank that is up to a specific dollar maximum amount for a defined term and is renewable upon the maturity date is a:
Line of credit
37
A company’s borrowing capacity goes up when
Debt goes down an equity goes up
38
What protects borrower’s credit rating and reduce the cost of borrowing?
Debt covenants
39
Advantages to Short-Term financing are:
Increased profitability | Decreased financing costs: interest rates are lower
40
Disadvantages to Short-Term financing:
Increased interest rate risk: interest rates may abruptly change Decreased capital availability: lender evaluation of credit worthiness may change and make financing impossible or less favorable.
41
Advantages to Long-Term financing:
Decreased interest rate risk | Increased capital availability
42
Disadvantages to Long-Term financing:
Decreased profitability: higher financing costs | Increased financing costs: LT debt generally carries higher interest rates