Deck 15: Assets: Inventory and Operations Management

Question 1

Current practice is for small businesses to only provide direct credit to customers.

Answer 1

False

Question 2

Assigning a high value to inventory results in increased sales margin and reported profit,but at the price of paying increased income taxes.

Answer 2

False

Question 3

Planning,organizing,and staffing are primarily the responsibility of operations management.

Answer 3

False

Question 4

One of the policies for managing customer credit requires business owners to maintain constant "aging" of accounts to quickly identify customers who become delinquent.

Question 5

Short-term assets are also known as operating assets.

Question 6

A process is what a business does when it takes some raw material and converts it into a valuable output.This does not apply to service businesses.

Question 7

Economic order quantity (EOQ)is also called reorder point.

Question 8

The time value of money is the concept that a dollar received today is worth much more than is a dollar to be received at some time in the future.

Question 9

A procedure is specific guidance for completing steps in a process.

Question 10

The three primary inventories of manufacturing are raw materials,work in process,and finished goods.

Question 11

For a small business,the amount and type of inventory held for resale is not important because the supply of inventory and demand of customers can be matched at all times.

Question 12

If your business is wholesale or retail merchandising,the issues of property,plant,and equipment (PPE)constitute your greatest investments and your greatest costs.

Question 13

Intangibility,inseparability,and perishability are the three characteristics of services that impact operations choices and decision making.

Question 14

All capital assets cause you to incur four costs over time: (1)the cost of acquiring the asset,(2)the cost of owning the asset,(3)the cost of operating the asset,and (4)the cost of disposing of the asset.

Question 15

The total cost of keeping inventory is the sum of the cost to buy the inventory,the cost to store,protect,and maintain inventory,and the cost of making an order to purchase inventory.

Question 16

Bar coding is used to reduce the cost of perpetual inventory systems.

Question 17

Factoring receivables to a commercial lender is usually less expensive than pledging receivables.

Question 18

A lease is simply a rental agreement that specifies a minimum period of time for which one must make rental payments.

Question 19

An arm's length transaction is a business deal where the parties have a prior relation or affiliation,but where the business is conducted as if they were unrelated.

Question 20

Disposal value is based on determining the price of either a new asset or a used asset for which there is an organized market.

Question 21

_____ refers to money that is owed to a business by its customers who purchased a product on credit.

A) Pledging receivable
B) Accounts receivable
C) Factoring receivable
D) Accounts payable

Question 22

Which of the following is the largest current asset that most manufacturing,wholesale,and retail firms generally have?

A) Copyright
B) Equipment
C) Inventory
D) Patent

Question 23

Which of the following statements is true of documenting the operations of your business?

A) Every business process does not have to be extensively documented.
B) You will not have to give up any personal control of your business,even if you have employees.
C) Businesses with no employees use a different process than do those businesses with employees.
D) A typical start to the task of documenting the processes of an operating business is to start from the bottom up.

Question 24

Giving a third party legal rights to debts owed by the business in order to provide assurance that borrowed money will be repaid is called _____.

A) operating leases
B) factoring receivables
C) capital leases
D) pledging receivables

Question 25

Economic order quantity (EOQ)helps a business to think in terms of:

A) factoring receivables.
B) ordering costs and carrying costs.
C) pledging receivables.
D) ordering costs and operating lease.

Question 26

Which of the following is a statistical technique that determines the size of inventory that a business must hold to minimize total inventory cost?

A) Benchmarking
B) Factoring
C) Pull-push strategy
D) Economic order quantity

Question 27

The practice of purchasing and accepting delivery of inventory only after it has been sold to the final customer is termed as _____.

A) perpetual inventory
B) point-of-sale system
C) just-in-time inventory
D) optimum stocking level

Question 28

Which of the following policies is a minimum standard for managing customer credit?

A) Providing cash discounts to customers who delay payments
B) Continuing credit sales to customers who become significantly late in paying
C) Authorizing credit sales without any credit check to every individual customer
D) Filing suits and liens against the assets of customers who default on payment

Question 29

________ is the series of steps and activities required to complete a process.

A) Work instructions
B) A procedure
C) Operations
D) GAAP

Question 30

Documenting the operations of your business,you must understand how three items relate to each other.Which of the items below is not one of those three related items?

A) procedure
B) property
C) work instructions
D) process

Question 31

Which of the following is not a benefit of correctly documenting your business processes?

A) There should be less waste and scrap in your processes.
B) There should be fewer employee mistakes.
C) The process is self-sufficient and does not require much time to review or update.
D) Extensive documentation will make selling your business much easier.

Question 32

The practice of acquiring inventory only in response to a completed sale is called a(n)_____.

A) pull-through system
B) economic order quantity
C) optimum stocking level
D) point-of-sale system

Question 33

A just-in-time (JIT)inventory system attempts to reduce inventory levels to the absolute minimum by:

A) purchasing and accepting inventory before it is sold to a customer.
B) delaying the shipment of the completed product to the customer.
C) keeping safety stock in case the estimate exceeds the demand.
D) assembling the product in the absolute minimum time possible.

Question 34

A ____ is the business activities necessary to convert inputs into desired outputs.

A) work instruction
B) procedure
C) process
D) payback period

Question 35

A(n)_____ is the amount of inventory that results in the minimum cost,considering the cost of lost sales resulting from running out of stock,the number of units sold per day,and the number of days required to receive inventory.

A) optimum stocking level
B) periodic inventory
C) economic order quantity
D) micro inventory

Question 36

Which of the following businesses should be most concerned with property,plant,and equipment?

A) A wholesaler
B) A rancher
C) A retailer
D) A hairstylist

Question 37

An ideal situation is where a business receives new inventory just as the last unit of the previous order is sold.However,this rarely occurs because the:

A) inventory level is not affected by demand.
B) delivery times never fluctuate.
C) sales volumes are not constant.
D) estimate never exceeds demand.

Question 38

Which of the following is a disadvantage of providing credit to customers?

A) It delays the receipt of cash.
B) It decreases the sales revenue.
C) It lowers the chances of repeat business.
D) It increases the cost of selling.

Question 39

Which of the following is an advantage of providing credit to customers?

A) It reduces the need to borrow money.
B) It speeds up the receipt of cash.
C) It reduces the cost of selling.
D) It ensures all customers make on-time payments.

Question 40

Selling the rights to collect accounts receivable to an entity outside the business is called _____.

A) factoring
B) pledging
C) reconciling
D) outsourcing

Question 41

A system of recording the receipt and sale of each item as it occurs is called a _____.

A) micro inventory
B) periodic inventory
C) just-in-time inventory
D) perpetual inventory

Question 42

The price at which goods and services are bought and sold between willing sellers and buyers in an arm's-length transaction is called a _____.

A) fair market value
B) disposal value
C) replacement value
D) book value

Question 43

_____ refers to the fixed,determinable period of utility of an asset.

A) Useful life
B) Salvage value
C) Payback period
D) Disposal value

Question 44

The purchase of inventory-typical with Internet-based businesses-only after a sale is made is called a _____.

A) periodic inventory
B) micro inventory
C) perpetual inventory
D) point-of-sale system

Question 45

Potential buyers and investors are most interested in the _____ value of a business's assets.

A) book
B) replacement
C) charge back
D) disposal

Question 46

Which of the following is an advantage to renting capital assets?

A) Renting usually protects you from unexpected costs of repairs.
B) You have an ownership position.
C) You can exercise control over cash outflows.
D) The dollars paid in rent will not exceed the dollars you would spend to own the asset.

Question 47

When determining the cost of a capital asset,the _______ is the sum of everything that you spend to acquire and prepare the asset for its first productive use.

A) acquisition cost
B) costs of owning
C) costs of disposition
D) costs of operating

Question 48

Which of the following is a feature of the perpetual inventory system?

A) It is the method with the lowest cost for maintaining records.
B) It maintains a constant record of the receipt and sale of inventory.
C) It requires very little time for constant record keeping.
D) It is the process of physically counting inventories on a set schedule.

Question 49

_____ are assets that are expected to provide economic benefits for periods of time greater than one year.

A) Accounts receivables
B) Hard assets
C) Contingent assets
D) Capital assets

Question 50

Which of the following is a primary advantage of replacement value?

A) Lower premiums on the policy
B) Higher price of the new asset
C) High accuracy of the value
D) Lower price of the new asset

Question 51

_____ is the cost incurred to substitute one asset with an identical asset.

A) Disposal value
B) Replacement value
C) Fair market value
D) Book value

Question 52

Depreciation is based on which of the following assumptions?

A) The period of utility of an asset is not fixed or determinable.
B) The value of an asset declines in a predictable manner over the period of utility.
C) The salvage value of an asset will not exist when the depreciation process is complete.
D) The value of an asset is not fixed or determinable.

Question 53

_____ is an arbitrary,but regular and systematic,method used to take asset value as an expense for the purpose of calculating net income or loss.

A) Inventory valuation
B) Capital budgeting
C) Benchmarking
D) Depreciation

Question 54

_____ is the determination of the amount of assets held by the firm for sale or production.

A) Inventory valuation
B) Capital budgeting
C) Factoring
D) Depreciation

Question 55

A _____ describes the difference between the original acquisition cost of capital assets and the amount of depreciation expense that has been recognized to date.

A) fair market value
B) disposal value
C) book value
D) replacement value

Question 56

_____ refers to the fixed and determinable value of an asset that will exist when the depreciation process is complete.

A) Market value
B) Book value
C) Salvage value
D) Disposal value

Question 57

The _____ methods define utility as being the net cash inflows that the asset will produce.

A) residual income valuation
B) discounted cash flow valuation
C) inventory valuation
D) pre-money valuation

Question 58

Which of the following is not generally considered to be very useful for any purpose other than accounting and income taxes?

A) Book value
B) Salvage value
C) Replacement value
D) Disposal value

Question 59

Small businesses use the periodic inventory method because it:

A) gives instant access to accurate inventory records.
B) records the receipt and sale of each item as it occurs.
C) meets the requirements of local and federal taxing agencies.
D) uses bar codes that are unique to each item of inventory.

Question 60

If a business offers its assets as collateral,lenders are most interested in the _____ value.

A) book
B) fair market
C) replacement
D) disposal

Question 61

Which of the following is the cost incurred in financing,insuring,taxing,or tracking an asset?

A) Acquisition cost
B) Cost of owning
C) Cost of operating
D) Replacement cost

Question 62

Which of the following is one of the disadvantages of the return on investment (ROI)analysis?

A) The profits received are not the same as cash.
B) The calculations involved in the method are complex.
C) It does not consider annual profits in its calculations.
D) It does not rely on accounting information with which investors are comfortable.

Question 63

What would James choose if he based his decision on the return on investment (ROI)?

A) He would choose HY-200 because it has a higher ROI of 0.48.
B) He would choose CZ84 because it has a higher ROI of 0.58.
C) He would choose HY-200 because it has a higher ROI of 0.58.
D) He would choose CZ84 because it has a higher ROI of 0.48.

Question 64

_____ refers to the process of deciding among various investment opportunities to create a specific spending plan.

A) Factoring receivables
B) Cash budgeting
C) Inventory valuation
D) Capital budgeting

Question 65

The primary advantage of the payback period is that:

A) it calculates the amount required to attain a capital asset.
B) it incorporates the time value of money.
C) it allows easy comparisons of alternatives.
D) it incorporates all cash flows that occur after the payback period.

Question 66

_____ is a general term for real estate,but it can also be applied as a legal term for anything owned or possessed.

A) Equipment
B) Plant
C) Inventory
D) Property

Question 67

_____ refers to the machinery,tools,or materials used in the performance of the work of a business.

A) Property
B) Plant
C) Inventory
D) Equipment

Question 68

The direct cost incurred in using an asset for the purpose for which it was intended is termed as _____.

A) cost of operating
B) cost of owning
C) whole of life cost
D) cost of disposition

Question 69

The amount of time it takes a business to earn back the funds it paid out to obtain a capital asset is referred to as the _____.

A) payback period
B) synodic period
C) chargeback period
D) grace period

Question 70

Lily,a restaurant owner,is planning to invest in a multi-purpose ZS-13 baking oven.The oven costs $20,000 and will have a useful life of 10 years.The payback each year is $8,000.Assuming that the money is received evenly across the year,what will be the payback period if she decides to purchase the oven?

A) 1 year and 5 months
B) 3 years and 3 months
C) 2 years and 1 month
D) 2 years and 6 months

Question 71

The capital budgeting equation used to measure the relationship between initial investment and the profits that are expected to be received from making the investment is called _____.

A) rate of investment
B) return on equity
C) return on investment
D) net present value

Question 72

The primary disadvantage of the payback period is that:

A) it incorporates all cash flows that occur after the payback period.
B) it is highly complex.
C) it does not allow the comparisons of alternatives.
D) it disregards the time value of money.

Question 73

_____ refers to a type of periodic inventory that conducts a count of the entire inventory being held for sale at a specific point in time.

A) Factoring
B) Perpetual inventory
C) Physical inventory
D) Benchmarking

Question 74

Which of the following is a disadvantage of renting capital assets?

A) It does not protect a business from unexpected costs of repairs.
B) It is not easily available.
C) It requires the business to make regular,timely payments.
D) It requires a major cash investment.

Question 75

The total cost of obtaining an asset,including such costs as purchase price,transportation,installation,testing,and calibrating in order to ready it for its first productive use is termed as _____.

A) replacement cost
B) cost of operating
C) cost of disposition
D) acquisition cost

Question 76

What will be the average profit for four years if Jack decides to invest in the HY-200 saw?

A) $21,750
B) $24,750
C) $28,750
D) $31,750

Question 77

Which of the following statements is not true of joint ventures?

A) Joint ventures make economic sense when each party has limited use of an expensive asset.
B) Joint ventures are the most commonly used method of reducing the costs and risks of acquiring capital assets.
C) Some leasing companies have created an ownership structure similar to joint ventures,called fractional ownership.
D) A joint venture is a formalized partnership between two or more businesses for some specific purpose.

Question 78

Which of the following is one of the advantages of the return on investment (ROI)analysis?

A) The profits received are the same as cash.
B) The calculations involved in this method are very difficult.
C) It incorporates the time value of money.
D) It relies on accounting information with which investors are comfortable.

Question 79

The sum of all costs of capital assets,including acquisition,ownership,operation,and disposal is called _____.

A) acquisition cost
B) cost of owning
C) whole of life cost
D) replacement cost

Question 80

Assuming that the money is received evenly across the year,what will be the payback period if Jack decides to invest in the CZ84 double cut frame saw?

A) 3 years and 7 months
B) 2 years and 11 months
C) 2 years and 3 months
D) 3 years and 1 month