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What is the primary benefit for a firm that maintains a large inventory?
What is the primary benefit for a firm that maintains a large inventory?
Which action would best maximize inventory turnover?
Which action would best maximize inventory turnover?
What is the consequence of purchasing in large quantities, according to the text?
What is the consequence of purchasing in large quantities, according to the text?
Which costs are included in the 'order costs' category?
Which costs are included in the 'order costs' category?
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What is the main goal of Economic Order Quantity (EOQ)?
What is the main goal of Economic Order Quantity (EOQ)?
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If 'S' represents the demand per period, 'O' represents the cost per order, and 'EOQ' represents the economic order quantity, what does the formula $TOC = S/EOQ * O$ calculate?
If 'S' represents the demand per period, 'O' represents the cost per order, and 'EOQ' represents the economic order quantity, what does the formula $TOC = S/EOQ * O$ calculate?
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What does TCC represent in the context of inventory management?
What does TCC represent in the context of inventory management?
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In the inventory cost graph provided, what does the point where Total Ordering Cost intersects with Total Carrying Cost typically represent?
In the inventory cost graph provided, what does the point where Total Ordering Cost intersects with Total Carrying Cost typically represent?
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Which of the following is NOT a direct determinant of a firm's accounts receivable size?
Which of the following is NOT a direct determinant of a firm's accounts receivable size?
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What is the primary objective of accounts receivable management?
What is the primary objective of accounts receivable management?
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Which approach to credit policy is most likely to prioritize sales volume over risk mitigation?
Which approach to credit policy is most likely to prioritize sales volume over risk mitigation?
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What is the main purpose of credit standards?
What is the main purpose of credit standards?
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Which of the '5 C's of credit' is concerned with the customer's moral obligation to fulfill promises?
Which of the '5 C's of credit' is concerned with the customer's moral obligation to fulfill promises?
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Which of the '5 C's of credit' assesses a customer's ability to pay based on their cash flow?
Which of the '5 C's of credit' assesses a customer's ability to pay based on their cash flow?
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Which of the '5 C's of credit' evaluates a customer’s resources available to pay debts?
Which of the '5 C's of credit' evaluates a customer’s resources available to pay debts?
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Which of the following is NOT explicitly mentioned as a factor influencing a customer's character?
Which of the following is NOT explicitly mentioned as a factor influencing a customer's character?
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Which of the following best describes the concept of 'condition' in the context of the 5 C's of credit?
Which of the following best describes the concept of 'condition' in the context of the 5 C's of credit?
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A company offers a '2/10, net 30' payment term. What does this mean for a customer?
A company offers a '2/10, net 30' payment term. What does this mean for a customer?
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What is a key requirement for an asset to be accepted as collateral for a loan?
What is a key requirement for an asset to be accepted as collateral for a loan?
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If a shipment occurs on January 5th and the payment terms are 2/10 net 30, what is the last day to receive the discount?
If a shipment occurs on January 5th and the payment terms are 2/10 net 30, what is the last day to receive the discount?
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Which payment term requires a customer to pay for goods or services before delivery?
Which payment term requires a customer to pay for goods or services before delivery?
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How does a change in a company's credit terms typically affect accounts receivable?
How does a change in a company's credit terms typically affect accounts receivable?
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Under the terms of 2/10 prox, net 30, when is the discount date?
Under the terms of 2/10 prox, net 30, when is the discount date?
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If an invoice with terms 2/10 EOM, net 40 is shipped on March 20th, what is the last day to receive the discount?
If an invoice with terms 2/10 EOM, net 40 is shipped on March 20th, what is the last day to receive the discount?
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A customer receives goods on July 20th under 'Net 10 EOM' terms. When is the full payment due?
A customer receives goods on July 20th under 'Net 10 EOM' terms. When is the full payment due?
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What does 'ROI' refer to in the payment term 2/10 ROI, net 40?
What does 'ROI' refer to in the payment term 2/10 ROI, net 40?
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Which of the following is a risk associated with 'Cash on Delivery' (COD) terms?
Which of the following is a risk associated with 'Cash on Delivery' (COD) terms?
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What is the main purpose of offering a cash discount to customers for early payment?
What is the main purpose of offering a cash discount to customers for early payment?
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What is the initial action typically taken when managing overdue accounts?
What is the initial action typically taken when managing overdue accounts?
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Which option represents the most drastic measure for collecting overdue payments?
Which option represents the most drastic measure for collecting overdue payments?
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In the context of inventory management, what does 'Work in Process' refer to?
In the context of inventory management, what does 'Work in Process' refer to?
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What is a potential consequence of a firm maintaining low inventory levels?
What is a potential consequence of a firm maintaining low inventory levels?
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What is the Economic Order Quantity (EOQ) for Zenith Berhad, given an annual sales of 7,500 machines, a carrying cost of RM14 per unit, and an ordering cost of RM70?
What is the Economic Order Quantity (EOQ) for Zenith Berhad, given an annual sales of 7,500 machines, a carrying cost of RM14 per unit, and an ordering cost of RM70?
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How is the safety stock (SS) for Zenith Berhad calculated, given their policy of maintaining 5% of annual sales as safety stock?
How is the safety stock (SS) for Zenith Berhad calculated, given their policy of maintaining 5% of annual sales as safety stock?
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What is the Reorder Point (ROP) for Zenith Berhad, given a daily demand of 20.83 machines, a lead time of 10 days, and a safety stock of 375 units?
What is the Reorder Point (ROP) for Zenith Berhad, given a daily demand of 20.83 machines, a lead time of 10 days, and a safety stock of 375 units?
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For Hitam Manis Distributor, what is the annual demand used to calculate the Economic Order Quantity (EOQ) if the company sells 500,000 units per year?
For Hitam Manis Distributor, what is the annual demand used to calculate the Economic Order Quantity (EOQ) if the company sells 500,000 units per year?
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What is the total annual inventory cost for the Abish Corporation, given an annual demand of 48,000 units, an ordering cost of RM100 per order, an EOQ of 2,100 units, a safety stock of 58 units, and a carrying cost of RM2.20 per unit?
What is the total annual inventory cost for the Abish Corporation, given an annual demand of 48,000 units, an ordering cost of RM100 per order, an EOQ of 2,100 units, a safety stock of 58 units, and a carrying cost of RM2.20 per unit?
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If the lead time for Abish Corporation is one week, and there are 50 weeks in the year, what is the weekly demand for Abish Corporation if the annual demand is 48,000 units?
If the lead time for Abish Corporation is one week, and there are 50 weeks in the year, what is the weekly demand for Abish Corporation if the annual demand is 48,000 units?
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How does changing the ordering cost impact the EOQ, assuming all other variables remain constant?
How does changing the ordering cost impact the EOQ, assuming all other variables remain constant?
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In the calculation of total inventory costs, which of the following is not included?
In the calculation of total inventory costs, which of the following is not included?
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Given the EOQ formula, which change would result in a lower economic order quantity?
Given the EOQ formula, which change would result in a lower economic order quantity?
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A company has observed that their lead time (L) has increased. Based on the reorder point formula, this will lead to:
A company has observed that their lead time (L) has increased. Based on the reorder point formula, this will lead to:
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According to the provided formulas, what is the effect of an increase in lead time (L) on the required safety stock (SS), assuming Lf remains constant?
According to the provided formulas, what is the effect of an increase in lead time (L) on the required safety stock (SS), assuming Lf remains constant?
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If a company wants to decrease its required safety stock, which action should it undertake?
If a company wants to decrease its required safety stock, which action should it undertake?
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In the ‘saw tooth’ inventory model, what does the vertical drop in the graph represent?
In the ‘saw tooth’ inventory model, what does the vertical drop in the graph represent?
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According to the information provided, what is the main assumption of the basic 'saw tooth' inventory usage pattern?
According to the information provided, what is the main assumption of the basic 'saw tooth' inventory usage pattern?
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If the daily usage rate $S_d$ of a product increases, but the lead time (L) stays constant, what is likely to happen to the Reorder Point (ROP)?
If the daily usage rate $S_d$ of a product increases, but the lead time (L) stays constant, what is likely to happen to the Reorder Point (ROP)?
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Which action would best account for uncertainty in the demand or delivery of inventory?
Which action would best account for uncertainty in the demand or delivery of inventory?
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Study Notes
Chapter 6: Account Receivable and Inventory Management
- Account receivable is the outstanding amount owed to a firm by its customers from credit sales
- The size of a firm's accounts receivable depends on the percentage of credit sales to total sales, level of sales, and credit policies (e.g., credit terms, credit standards, and collection policies)
- Effective account receivable management aims to ensure cash is not tied up in receivables and allows efficient collection periods
- Credit policy is a system or procedure that manages accounts receivable, including credit standards, credit terms, and collection activities
- Credit policies can be sales-oriented (accepting higher risk) or conservative (sacrificing sales for safety)
- Credit standards are guidelines for acceptable credit risk levels to determine which customers receive credit
- Credit standards assess minimum financial strength and moral standing of applicants
- The 5C's of credit are used to determine credit risk: Character, Capacity, Capital, Condition, and Collateral
- Character measures a customer's willingness to pay based on moral obligations, business reputation, past payment history, and other relevant factors
- Capacity assesses a customer's ability to pay based on cash flow and ability to meet obligations without impacting business operations
- Capital evaluates a customer's resources and ability to generate resources to pay debts
- Condition considers external factors affecting a customer's operations (e.g., economic conditions, political instability, social values), influencing their ability to pay
- Collateral assesses tangible or intangible assets offered as a guarantee for debt repayment, ensuring liquid and transferable value
- Credit terms outline the conditions for credit to customers, including cash discounts for early payments, discount periods, credit outstanding periods, and late payment fees
- Common credit/payment terms include open terms, cash before delivery, cash in advance, cash with order, cash on delivery, and net terms (e.g., net 30, net 10 EOM)
- Collection activities involve appropriate actions when accounts are overdue, such as reminders (postcards, letters), follow-up (letters, visits), and drastic action (legal recourse)
Management of Inventory
- Inventory includes raw materials, work-in-process, and finished goods
- Raw materials are purchased from suppliers to initiate the production process
- Work-in-process includes partially finished goods needing additional work before becoming finished
- Finished goods are completed products ready for sale
- Inventory management aims to maximize inventory turnover to release tied-up funds, and ensure sufficient inventories are maintained to meet production and sales needs
- Other inventory management objectives include considerations of time to order materials, cost-effectiveness of bulk orders, and economies of scale
- Inventory costs include ordering costs (clerical costs, processing, communication), carrying costs (transportation, insurance, storage), and total inventory costs (sum of ordering and carrying costs)
- Economic Order Quantity (EOQ) is the order quantity minimizing total inventory costs
- Reorder point (ROP) indicates when an order should be placed for new shipments
- Safety stock optimizes cost and safety needs, accounting for uncertainties in demand and delivery
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Description
Test your knowledge on key concepts in inventory management and accounts receivable. This quiz covers topics such as Economic Order Quantity (EOQ), inventory turnover, order costs, and credit policy approaches. Challenge yourself and see how well you understand these essential business principles.
