Exercise 1

Encircle the letter that corresponds to your answer. 1. Which of the following factors affects the working capital? a. operating cycle b. business cycle c. efficiency d. all of the above 2. The term of sale such as 2/10, n/30 is an example of a. credit term b. collection policy c. cash discounts d. none of the above 3. The length of time from the receipt of inventory until it is sold is the a. average age of inventory b. cash conversion cycle c. average collection period d. operating cycle 4. Working capital is a. the total of current assets and current liabilities b. the product of current assets and current liabilities c. the difference between current assets and current liabilities d. none of the above 5. Which of the following is not the major function of cash management? a. expedite collection of credits b. invest excess cash c. extend cash payments d. maximize sales6. Which of the following will increase the cash conversion cycle? a. an increase in inventory turnover b. an increase in accounts receivable turnover c. an increase in accounts payable turnover d. a decrease in average age of inventory 7. Operating cycle measures a. the time that elapses from the firm's receipt of raw materials until it pays for those materials b. the time that elapses from the payment of raw materials until the firm is paid for its finished product c. the time that clapses from the firm's receipt of raw materials to begin production to its collection of cash from the sale of the finished product d. none of the above 8. Operating cycle comprises of a. the average age of inventory b. the average age of receivables c. the average age of inventory plus the average age of receivables less the average age of payments d. the average age of inventory plus the average age of receivables 9. It is an investment certified by a certificate with a holding period of at least 30 days. a. stock b. bonds c. savings account d. time deposit 10. It is a long-term obligation issued by a public or private corporation to raise money for the purpose of expansion, capital expenditures, or payoff obligation. a. stock b. bonds c. savings account d. time depositEncircle the letter that corresponds to your answer. 1. Which of the following items does not affect the cash conversion cycle? a. inventory period b. accounts receivable c. accounts payable period d. all the above 2. If Mr. Uy purchases materials on credit and thus has accounts payable, its cash conversion cycle will be a. longer than its operating cycle b. shorter than its operating cycle c. the same length as its operating cycle d. the same length as its sales turnover cycle 3. What is the effect of an increase in inventory carrying cost? a. increase the safety stock required b. no effect on the economic order quantity c. decrease the economic order quantity d. decrease the number of orders issued per year 4. It is a process in which special post office boxes are set up by the firm to expedite the receipt and processing of its accounts receivables. a. safety-deposit boxes c. automatic-debit b. lockboxes d. centralized banking 5. It is the amount of time that it takes for a check to clear through the banking system. a, mail float c. clearing float b. processing float d. delivery float6. The economic order quantity (EOQ) formula assumes that a. purchase costs per unit differ because of quantity discounts b. costs of placing an order vary with quantity order c. periodic demand for the good is known d. erratic usage rates are cushioned by safety stocks 7. Business firms hold cash and marketable securities for which of the following reasons or motives? a. transactions, precautionary, and conditional motives b. precautionary, speculative, and risk management motives c. transactions, precautionary, and speculative motives d. precautionary, profitable, and transactions motives 8. A firm takes advantage of unusual cash discounts or price bargains for the purpose of a. transactions motive c. speculative motive b. precautionary motive d. leverage motive 9. To shorten cash conversion cycle, a firm must a. turn inventory over as quickly as possible b. collect accounts receivables as quickly as possible c. pay accounts as slowly as possible d. all of the above 10. All of the following results are unfavorable except a. a large decrease in the accounts receivable turnover ratio b. an increase in sales along with a larger decrease in the gross profit percentage c. a decrease in the operating cash flow ratio d. an increase in the inventory turnover ratioEncircle the letter that corresponds to your answer. Items 1 and 2. Ace Computer shop produces 80,000 chips per year. The cost of placing an order is P20, and the carrying cost is '5 per unit per year. It takes two weeks after the reorder point is reached for an order of chips to arrive. 1. What is the economic order quantity? a. 141 units c. 566 units b. 200 units d. 800 units 2. What is the reorder point? a. 2,800 units c. 7,924 units b. 3,1 1 1 units d. 11,200 units Items 3 to 6. FTV sells on terms 2/10, n/30. Gross sales for the year is P9.000,000 and the collection department estimates that 40% of the customers pay on the 10" day and take discounts, 40% pay on the 30" day, and the remaining 20% pay, on average, 50 days after the purchase. Assume 360 days per year. 3. What is the average collection period? a. 16 days c. 26 days b. 22 days d. 30 days 4. What is the current receivables balance? a. P250,000 c. 1700,000 b. P650,900 d. P750.000 5. What would be the new average collection period if FTV toughened up on its collection policy, with the result that all non-discount customers paid on the 30" day? a. 19 days c. 30 days b. 22 days d. none of the above 6. What is the new receivables balance? a. P550,000 c. P600,000 b. P580,000 d. P750.0007. The credit terms for Levitz Furniture are 2/10, n/30. What is the approximate annual cost of not taking the discount? Assume 360 days in a year. a. 24.00% c. 36.00% b. 24.49% d. 36.739% 8. Sasakyani Company sells to retail auto supply stores on credit terms of 2/10, n/30. Annual credit sales are f'300 million and its accounts average 25 days overdue. Determine Sasakyani's average collection period. Assume 360 days in a year. a. 30 days c. 50 days b. 45 days d. answer not given 9. Browny sells to retail appliance stores on credit terms of net 30. Annual credit sales is P27,000.000 spread evenly throughout the year and its accounts average 20 days overdue. The firm's variable cost ratio is 0.70. Determine Browny's average investment in receivables. Assume 360 days in a year. a. P 1.500,000 b. P 2.250.000 c. P 3.750,000 d. cannot be determined from the information provided 10. Marca Leon is planning to change its credit policy. The proposed change is expected to . shorten the collection period from 50 days to 30 days, . increase the ratio of cash sales to total sales from 20% to 30%, and . decrease total sales by 10%. If projected sales for the coming year is P40,000,000, what is the difference on the average accounts receivable between the current and the proposed change in credit policy? Assume 360 days in a year. a. P2.344.444 b. P2.604.939 c. P4.938.272 d. cannot be determined