RECEIVABLES AND INVENTORY MANAGEMENT

1. A company's budgeted sales for the coming year are P 96 million, of which 80% are expected to be credit sales at
terms of n/30. The company estimates that a proposed relaxation of credit standards would increase credit sales
by 30% and increase the average collection period from 30 to 45 days. Based on a 360-day year, the proposed
relaxation of credit standards would result to an increase in AR balance by
A. P 6,880,000
B. P 6,080,000
C. P 2,880,000
D. P1,920,000
2. Singapore Corporation plans to tighten its credit policy. Below is the summary of changes: OLD policy NEW
policy:
Old Policy New Policy
Average number of days collection 75 50
Ratio of credit sales to total sales 70% 60%
Projected sales for the coming year are P 50 million and it is estimated that the company's credit sales to be 5%
less if the new policy is implemented. Assuming a 360-day year, what is the effect of the new policy on accounts
receivable?
A. P3,333,333 decrease
B. P3,817,445 decrease
C. P6,500,000 decrease
D. P18,749,778 increase
3. Iran Computers believes that is collection costs could be reduced through modification of collection procedures.
This action is expected to result in a lengthening of the average collection period from 28 days to 34 days;
however, there will be no change in uncollectible accounts. The company's budgeted credit sales for the coming
year are P 27,000,000, and short-term interest rates are expected to average 8%. To make the changes in
collection procedures cost beneficial, what would be the minimum savings in collection costs (using a 360-day
year) for the coming year?
A. P 30,000
B. P 36,000
C. P180,000
D. P360,000
4. A company with P 4.8 million in credit sales per year plans to relax its credit standards, projecting that this will
increase credit sales by P 720,000. The company's average collection period for new customers is expected to be
75 days, and the payment behavior of the existing customers is not expected to change. Variable costs are 80%
of sales. The firm's opportunity cost is 20% before taxes. Assuming a 360-day year, what is the company's
benefit (loss) on the planned change in credit terms?
A. P 0
B. P 28,800
C. P 120,000
D. P 144,000
5. A computerized inventory system that simulates needed materials for the finished product, and then compares
production need to available inventory balance to determine when orders should be placed.
A. EOQ system
B. Electronic Data Interchange
C. Just-In-Time system
FNM01 – FINANCIAL MANAGEMENT
ASSIGNMENT 1 - FINALS
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 D. Material Requirements Planning System
6. The economic order quantity formula indicates that
A. Annual quantity of inventory to be carried
B. Annual usage of materials during the year
C. Safety stock plus estimated inventory for the year
D. Quantity of each individual order during the year
7. An example of carrying cost is:
A. Disruption of production schedules
B. Quantity discount lost
C. Handling costs
D. Spoilage
8. The ordering costs associated with inventory management include
A. Insurance costs, purchasing costs, shipping costs, and spoilage
B. Obsolescence, setup costs, quantity discounts lost, and storage costs
C. Purchasing costs, shipping costs, setup costs, and quantity discounts lost
D. Shipping costs, obsolescence, setup costs, and capital invested
9. India operates a chain of hardware stores across Manila. The controller wants to determine the optimum safety
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 P 50.
 The stock-out cost is estimated to be P 5 per unit.
 The company orders inventory on the average of 10 times per year.
 The probabilities of a stock out per order cycle with varying levels of safety stock are as follows:
Safety Stock Stock-out Probability
200 units 0 0%
100 units 100 units 15%
0 100 units 15%
0 200 units 12%
What is the total cost of safety stock on an annual basis with a safety stock level of 100 units?
A. P550
B. P1,750
C. P1,950
D. P2,000
10. The amount of inventory that a company would tend to hold in stock would increase as the
A. Variability of sales decreases
B. Cost of carrying inventory decreases
C. Cost of running out of stock decreases
D. Sales level fails to a permanently lower level
11. In inventory management, the safety, stock will tend to increase if the
A. Carrying cost increases
B. Cost of running out of stock decreases
C. Variability of the lead time increases
D. Variability of the usage rate decreases

FNM01 – FINANCIAL MANAGEMENT

ASSIGNMENT 1 - FINALS
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