Name: __________________________________________ Section: ___________ Score:

Quiz # 3 for Finals

Multiple Choice. Write the letter of your answer on the space provided. 1 point per item.
D___1. The primary objective of working capital management is to:
a. maximize company’s total assets
b. minimize company’s total liabilities
c. balance the amount of the current assets and the current liabilities
d. achieve a balance between risk and return both assets and liabilities
A___ 2. In cash management, the difference in between the bank balance for the firm’s account and the cash
balance that the firm shows on its own books is called:
a. float c. timing difference
b. bank charges d. reconciling item
D____3. Which of the following statements is true?
a. Short term debt is usually more expensive than long term debt.
b. Liquid assets do not ordinarily earn higher return relative to long term assets, so holding the
former will maximize the return on total assets.
c. A conservative working capital policy is characterized by higher current ratio and acid test ratio.
d. Determining the appropriate level of working capital for a firm requires changing of firm’s
capital structure and dividend policy.
D____4. Following are the ways of accelerating collection of accounts receivable, except:
a. shorten credit term
b. minimize negative float
c. age of accounts receivable
d. offer special discounts to those who pay promptly
C____5. Vice Corporation had income before tax of P100,000 for the year. Included in this amount was
depreciation expense of P20,000, bond discount amortization of P18,000 and the amount paid for salaries
and wages amounting to P30,000. The estimated cash flow for the year is:
a. P100,000 c. P138,000
b. P62,000 d. P120,000
C____6. Inventory costs, in addition to the costs of the purchased items, have been traditionally classified as
follows, except:
a. ordering costs c. order-filling costs
b. holding costs d. stockout costs
B____7. In the EOQ model, the return on capital that is foregone when it is invested in inventory is a/n
a. order costs c. excluded in the EOQ computation
b. carrying costs d. irrelevant costs
C____8. A working capital technique that increases the payable float and delays the outflow of cash is:
a. electronic data interchange (EDI) c. a draft
b. automatic fund transfer (AFT) d. Baumol Cash Management Model
A____9. Which of the following is incorrect?
a. Profitability varies directly with liquidity.
b. The greater the risk, the greater is the potential for larger return.
c. Long-term financing has less liquidity risk than short term financing, but has higher explicit
costs, hence lower return.
d. More current assets lead to a greater liquidity, but yield lower returns.
D____10. For a manufacturing firm, the most direct way of preparing a cash budget requires incorporation of
the following, except:
a. Sales projections and credit terms
b. Collection percentages and other cash receipts
c. Estimated purchases and other cash receipts
d. Projected net income and depreciation expense
PROBLEMS. Show your solution and write your answer on the space provided. 3 points per answer.
(2 decimal places only for the answers)
Problem 1.
The following data are taken from the records of Apple Corp. for the year ended Dec 31, 2018. (use 360-day
year)

Total Gross Sales P1,500,000

Purchase Discounts taken 8,000
Ending Inventory 250,000
Ave. Accounts Receivable 55,000
Ave. Accounts Payable 4,000
Beginning Inventory 150,000
Credit Purchases 128,500
Sales Returns 25,000
Purchase Returns 500
Cost of Sales 1,000,000
Cash Sales portion 25%

(a.) What is the company’s cash conversion cycle? _______________78d

(b.) What is the Accounts Receivable Collection Period? __________ 18d
(c.) What is the Accounts Payable Deferral Period? ______________12d
(d.) How much is the Net Credit Sales?_____________1100,000
(e.) What is the Accounts Payable Turnover? ________30 times
(f.) Compute for the Average inventory?____________200,000

= Invty Conv Pd + AR Coll Pd – AP Def Prd

= 360 + 360 - 360 .
1,000,000 1,100,000. 120,000
(150K+250K)/2 55,000. 4,000

= 72 d + 18 d – 12d = 78 days Cash Conversion Cycle

Total Gross Sales 1,500,000

X Credit sales portion. 0.75 .
Gross Credit Sales 1,125,000
Sales Returns 25,000
Net Cr Sales 1,100,000

Credit Purchases 128,500 AP TO = 120,000/4,000 = 30times

Less Purchase Return 500
Less Purchase Disc 8,000
Net Cr. Purchases 120,000

Problem 2.

The company estimates that it will need a total cash of P2,500,000 for one month period, where cash account
is expected to be disbursed at a constant rate. The opportunity interest rate is 12% per annum. The
transaction costs to borrow is P400. (2 decimal places only for the answer)
 (a.) Find the optimal cash balance. __________________447,213.60
(b.) The number of transactions made during the year is: _________times 67.08 times

OCB = √ 2 x 2500,000 X 400 Or √ 2 x 30,000,000 X 400. = 447,213.60

0.01 0.12

Cycle = 25,000,000 x 12 = 30,000,000 / 447,213.60 = 67.08 times

Problem 3:
Blackpink, Inc. sells cellphone cases which it buys from a local manufacturer. Blackpink, Inc. sells 24,000
cases evenly throughout the year. The cost of carrying one unit of inventory for one year is P10.00 and the
order cost per order is P220. Currently, Blackpink, Inc. orders in bulk of 1200 units per order made.

Using the current order system, compute for the:

(a.) company’s total annual ordering cost?_____________4400
(b.) company’s total annual inventory cost?____________10400
(c.) times of order made during the year? _____________times 20

AOC = 220 X (24000/1200) = 4400

ACC = 10 x (1200/2) = 6000
AIC = 4400 + 6000 = 10400

Order cycle = 24,000/1200 = 20 times

Using the Economic Order Quantity Model, compute for the:

(d.) actual EOQ in units?(in nearest whole number)___________units. 1028
(e.) company’s total annual ordering cost?_____________5136.19
(f.) company’s total annual carrying cost?_____________5140
(g.) company’s total annual inventory cost?____________10276.19
(h.) total savings made using the EOQ model?__________123.81

EOQ = √ 2 x 24,000 X 220. = 1027.61 = 1028

10

AOC = 220 X (24000/1028) = 5136.19

ACC = 10 x (1028/2) = 5140
AIC = 5136.19 + 5140= 10276.19

Savings made = 10400 - 10276.19 = 123. 81

Problem 4:
Use following data provided below:
Annual usage 450,000 units
Days in a year 360 days
Normal Lead Time 50 days
 (a.) Assume that there is NO delay in the purchases made, the reorder point will be: ____________
62500
ROP = 50 x. (450,000/360) = 62,500

(b.) Assume that there is a 5 days delay in the purchases made:

a. What is the maximum lead time? ________________55d = 50+5 days delay
b. What is the new reorder point? __________________68750
c. How much should be placed as your safety stock? ______________6250

ROP = 55 x. (450,000/360) = 68,750

SS = 5 x. (450,000/360) = 6250 or 68,750 – 62,500= 6,250

“Happiness does not depend on outward circumstances, but on the state of

the heart.” —J.C. Ryle
“So we do not lose heart. Though our outer self is wasting away, our inner self
is being renewed day by day.”
-2 Cor. 4:16
Merci pour l’amour! – Ms. Jenn