FINA 3313 Chapter 12 Quizzes Review

Carlisle Transport had $4,830 cash at the beginning of the period. During the period, the firm collected $1,615 in receivables, paid $1,813 to supplier, had credit sales of $6,512, and incurred cash expenses of $500. What was the cash balance at the end of the period?

Cash Balance at Ending Period = Cash at Beginning Period + Receivables - Payment to Supplier - Incurred Cash Expenses = $4,830 + $1,615 - $1,813 - $500 = $4,132 Therefore, the cash balance at the end of the period is $4,132.

Libscomb Technologies' annual sales are $5,474,941 and all sales are made on credit, it purchases $3,496,509 of materials each year (and this is its cost of goods sold). Libscomb also has $546,441 of inventory, $485,834 of accounts receivable, and beginning and ending of year $442,166 and $483,633 accounts payables (respectively). Assume a 365 day year. What is Libscomb's Cash Cycle (in days)?

Cash Cycle = Operating Cycle - accounts payable period = Operating Cycle = Inventory Period + Accounts Receivable Period Inventory Period = 365 / Inventory Turnover Ratio Inventory Turnover Ratio = Cost of Goods Sold / Inventory = $3,496,509 / $546,441 = 6.398694461 Inventory Period = 365 / 6.398694461 = 57.04 days Receivables Period = 365 / Receivables Turnover Ratio Receivables Turnover = Credit Sales / Accounts Receivable = $5,474,941 / $485,834 = 11.26915984 Receivables Period = 365 / 11.26915984 = 32.39 days Operating Cycle = 57.04 days + 32.39 days = 89.43 days Accounts Payable Turnover = Cost of Goods Sold / Accounts Payable = $3,496,509 / ($483,633 + $442,166 = $925,799 / 2 = $462,899.50) = 7.553494873 Accounts Payable Period = 365 / Accounts Payable Turnover Ratio = 365 / 7.229674154 = 48.32 days Cash Cycle = 89.43 days - 48.32 days = 41.11 days

Davis Supply maintains an average inventory of 2,000 dinosaur skulls for sale to filmmakers. The carrying cost per skull per year is estimated to be $150.00 and the fixed order cost is $46. What is the economic order quantity (EOQ)? (Round to the nearest whole number.)

EOQ = √2 * Annual Consumption * Ordering Cost per order / Carrying Cost per order = √2(2,000)(46)/150 = 35 units

Mavericks Cosmetics buys $4,979,996 of product (net of discounts) on terms of 6/10, net 60, and it currently pays on the 10th day and takes discounts. Mavericks plans to expand, and this will require additional financing. If Mavericks decides to forego discounts, what would the effective percentage cost of its trade credit be, based on a 365-day year? Answer in % terms to 2 decimal places.

Effective Cost of Trade Credit = [1+(Discount % / (1 - Discount %))]^(365 / net credit days)) - 1 = [1+ (9% / (1-9%))] ^(365/(10)) -1 = 856.83% Effective Cost of Trade Credit = 856.83%

Libscomb Technologies' annual sales are $5,567,289 and all sales are made on credit, it purchases $3,077,182 of materials each year (and this is its cost of goods sold). Libscomb also has $557,912 of inventory, $499,504 of accounts receivable, and $437,543 of accounts payable. Assume a 365 day year. What is Libscomb's Inventory Period (in days)?

Inventory Period = 365 / Inventory Turnover Ratio Inventory Turnover Ratio = Cost of Goods Sold / Inventory = $3,077,182 / $557,912 = 5.515532916 Inventory Period = 365 / 5.515532916 = 66.18 days

Libscomb Technologies' annual sales are $5,070,085 and all sales are made on credit, it purchases $4,110,662 of materials each year (and this is its cost of goods sold). Libscomb also has $505,868 of inventory, $484,739 of accounts receivable, and $416,620 of accounts payable. Assume a 365 day year. What is Libscomb's Inventory Turnover?

Inventory Turnover = Cost of Goods Sold / Inventory = $4,110,662 / $505,868 = 8.13

Mahrouq Technologies buys $13,431,550 of materials (net of discounts) on terms of 4/30, net 60, and it currently pays within 30 days and takes discounts. Mahrouq plans to expand, and this will require additional financing. If Mahrouq decides to forego discounts and thus to obtain additional credit from its suppliers, calculate the nominal cost of that credit. Answer in % terms to 2 decimal places (no % sign).

Nominal Cost of Trade Credit = [Discount / (100% − Discount %)] * [365 / (Final Due Date − Discount Period)] Nominal Cost of Trade Credit = [4 / (100 - 4) * [365 / (60 - 30)] Nominal Cost of Trade Credit = 0.5069 or 50.69%

Libscomb Technologies' annual sales are $6,190,509 and all sales are made on credit, it purchases $3,317,371 of materials each year (and this is its cost of goods sold). Libscomb also has $589,321 of inventory, $496,433 of accounts receivable, and $432,848 of accounts payable. Assume a 365 day year. What is Libscomb's Operating Cycle (in days)?

Operating Cycle = Inventory Period + Accounts Receivable Period Inventory Period = 365 / Inventory Turnover Ratio Inventory Turnover Ratio = Cost of Goods Sold / Inventory = $3,317,371 / $589,321 = 5.629140994 Inventory Period = 365 / 5.629140994 = 64.84 days Receivables Period = 365 / Receivables Turnover Ratio Receivables Turnover = Credit Sales / Accounts Receivable = $6,190,509 / $496,433 = 12.46997883 Receivables Period = 365 / 12.46997883 = 29.27 days Operating Cycle = 64.84 days + 29.27 days = 94.11 days

4/10 net 60 means that if Maverics cosmetics pays within 10 days of buy, it will get 4% discount otherwise it will have to pay due amount within 60 days and forego discount.

True

Hammond Supplies expects sales of 213,564 units per year with carrying costs of $4.09 per unit and ordering cost of $5.65 per order. Assuming the level of inventory is stable, what is the optimal average number of units in inventory? Round to the nearest whole number.

Optimal Average Units = EOQ / 2 = √2 * Annual Demand * Ordering Cost / (Carrying Cost) = √2 * 213,564 * 5.65 / (4.09) = 768 / 2 = 384 units

Libscomb Technologies' annual sales are $6,270,543 and all sales are made on credit, it purchases $4,217,655 of materials each year (and this is its cost of goods sold). Libscomb also has $570,818 of inventory, $1,475,000 of accounts receivable, and $1,400,000 of accounts payable. Assume a 365 day year. What is Libscomb's Receivables Period (in days)?

Receivables Period = 365 / Receivables Turnover Ratio Receivables Turnover = Credit Sales / Accounts Receivable = $6,270,543 / $1,475,000 = 4.251215593 Receivables Period = 365 / 4.251215593 = 86 days

Libscomb Technologies' annual sales are $5,385,599 and all sales are made on credit, it purchases $3,361,771 of materials each year (and this is its cost of goods sold). Libscomb also has $538,848 of inventory, $544,153 of accounts receivable, and $481,968 of accounts payable. Assume a 365 day year. What is Libscomb's Receivables Turnover?

Receivables Turnover = Credit Sales / Accounts Receivable = $5,385,599 / $544,153 = 9.90