IMANET IMANET Certifications IMANET-CMA Questions & Answers

• Question 821:

  A working capital technique which delays the outflow of cash is

  A. Factoring.

  B. A draft.

  C. A lock-box system.

  D. Electronic funds transfer.

  Correct Answer: B

  A draft is a three-part instrument in which one person (the drawer) orders a second person (the drawer) to pay money to a third person (the payee). A check is the most common form of draft. It is an instrument payable on demand in which the drawer is a bank. Consequently, a draft can be used to delay the outflow of cash. A draft can be dated on the due date of an invoice and will not be processed by the drawer until that date, thereby eliminating the necessity of writing a check earlier than the due date or using an EFT. Thus, the outflow is delayed until the check clears the drawer bank.

• Question 822:

  Average daily collection of checks for a firm is $40,000.The firm also writes on the average $35,000 of checks daily. If the collection period for checks is 5 days, calculate the net float.

  A. $25,000

  B. $40,000

  C. $175,000

  D. $200,000

  Correct Answer: A

  The difference between collections and payables is $5,000 daily. Five day's worth amounts to $25,000 of float.

• Question 823:

  What is the be naif for affirm with daily sales of $15,000 to be able to speed up collections by2 days, assuming an 8% annual opportunely cost of funds?

  A. $2,400 daily benefit.

  B. $2,400 annual benefit.

  C. $15,000 annual benefit.

  D. $30,000 annual benefit.

  Correct Answer:

  Speeding up collections by two days will free up $30,000. At 8% interest1 the benefit will be [2400 annually.

• Question 824:

  The carrying costs associated with inventory management include

  A. Insurance costs, shipping costs, storage costs, and obsolescence.

  B. Storage costs, handling costs, capital invested, and obsolescence.

  C. Purchasing costs, shipping costs, set-up costs, and quantity discounts lost.

  D. Obsolescence, set-up costs, capital invested, and purchasing costs.

  Correct Answer: B

  Carrying costs include storage costs, handling costs, insurance costs, and interest on capital invested, and obsolescence.

• Question 825:

  The level of safely stocking inventory manage mend depends on all of the following except the

  A. Level of uncertainty of the sales forecast.

  B. Level of customer dissatisfaction for back orders.

  C. Cost of running out of inventory.

  D. Cost to reorder stock.

  Correct Answer: D

  The level of safety stock is based on the delivery lead time and the variability of sales during the lead time. The cost of stock outs, usually in the form of opportunity costs, is also considered. Safety stocks are irrelevant to the economic order quantity. Thus, the cost to reorder, which is incorporated into the EQO model, does It not affect the level of safety stock.

• Question 826:

  The economic order quantity for a product is 500 units. However, new orders require 4 working-days lead time during which 80 units will be used. Given this information, the correct economic order quantity' is

  A. 420 units.

  B. 500 units.

  C. 509 units.

  D. 580 units.

  Correct Answer: B

  The lead times does not affect the EOQ; it just means the order should be placed four days earlier.

• Question 827:

  As a company becomes more conservative with respect to working capital policy, it would tend to have a

  (n)

  A.

  Increase in the ratio of current liabilities to concurrent liabilities.

  B.

  Decrease in the operating cycle.

  C.

  Decrease in the quick ratio.

  D.

  Increase in the ratio of current assets to concurrent assets.

  Correct Answer: D

  A conservative working capital policy results in an increase in working capital (current assets -- current liabilities). It is typified by a reduction in liquidity risk. Increasing the current ratio, whether by decreasing current liabilities or increasing current assets1 minimizes the risk that the company will not be able to meet its obligations as they fall due. Thus, an increasing ratio of current to concurrent assets means that a company is forgoing the potentially higher returns on long-term assets in order to guard against short- term cash flow problems.

• Question 828:

  The following information regarding inventor policy was assembled by the JRJ Corporation. The company uses a 50- week year in all calculations.

  

  The reorder point is

  A. 3,300 units.

  B. 2,100 units.

  C. 800 units.

  D. 1,300 units.

  Correct Answer: B

  The reorder point is the inventor level at which an order should be placed. This level is the inventory to be sold during the lead time plus any safely stock. If weekly sales are 200 units (10,000 ?50 weeks) and the lead time is 4 weeks, sales during the lead time should be 800 units. Adding the 800 units of expected sales to the 1,300 units of safely stock produces a reorder point of 2,100 units.

• Question 829:

  Handy operates a chain of hardware stores across Ohio. The controller wants to determine the optimum safely stock levels for an air purifier unit. The inventory manager compiled the following data: ?The annual carrying cost of inventory approximates 20% of the investment in inventory. ?The inventory investment per unit averages $50. ?The stock out cost is estimated to be $5 per unit. ?The company orders inventory on the average of 10 times per year. ?Total cost = carrying cost + expected stock out cost. ?The probabilities of a stock out per order cycle with varying levels of safely stock are as follows:

  

  The total cost of safely stock on an annual basis with a safely stock level of 100 units is

  A. $1750

  B. $1950

  C. $550

  D. $2000

  Correct Answer: A

  Total cost is defined as carrying cost plus expected stock out cost. At 20% of the $50 unit inventory cost, carrying cost is $10 per unit per year. Thus. carrying cost for 100 units of safely stock is $1 .000. A stock out has a 15% probability at this level of safely stock, and stock out costs are $500 (100 x $5) for each occurrence. If the firm orders 10 times per year, the expected number of stock outs is 1.5(15% x 10). Hence, total expected stock out cost for they aeries $750 ($500x1.5). Total cost is $1750 per year ($1 .000

  + $750).

• Question 830:

  A major supplier has offered Alpha Corporation a year-end special purchase whereby Alpha could purchase 180,000 cases of sport drink at $10 per case. Alpha normally orders 30,000 cases per month at $12 per case. Alpha's cost of capital is 9%. In calculating the overall opportunity cost of this offer, the cost of carrying the increased inventory would be

  A. $32,400

  B. $40,500

  C. $64,800

  D. $81,000

  Correct Answer: A

  If Alpha makes the special purchase of 6 months of inventory (180,000 cases + 30,000 cases per month), the average in victory for the 6-month period will be $900,000 [(180,000 x $10) + 2]. If the special purchase is not made, the average in victory for the same period will be the average monthly inventory of $180,000 [(30,000 x $12) + 2]. Accordingly, the incremental average inventory is $720,000 ($900,000 -- $180,000), and the interest cost of the incremental 6-month investment is $32,400 [($720,000 x9%) ?2].