Which one of the following is a speculative motive for holding cash? Select one:

Question

Which one of the following is a speculative motive for holding cash?

Select one:

a. Contributing $1,000 to help fund medical care for an uninsured neighbor

b. Buying extra inventory because a key supplier offered a special one-time discount

c. Needing to purchase a new delivery truck because the old one was totally destroyed in an accident

d. Paying a $100 bonus to all employees at year end

e. Paying the annual insurance premium on the firm's assets

Question 17

Question text

Which of the following are carrying costs of granting credit?

I. the losses incurred when customers do not pay
II. required return on receivables
III. costs of the credit application process
IV. costs expended in the collection process

Select one:

a. I and IV only

b. II, III, and IV only

c. I, II, III, and IV

d. I, II, and III only

e. II and III only

Question 18

The Flowering Vine buys hanging plants for $2 each and resells them for $8.95 each. The firm sells 3,500 plants per year. Generally, the firm orders 400 plants at a time and has a fixed cost per order of $28. The carrying cost per unit is $1.16. To avoid newer plants mixing with older plants, the inventory is totally sold out before it is restocked. The total annual carrying cost is ____ and the total annual restocking cost is _____.

Select one:

a. $211; $245

b. $232; $245

c. $211; $269

d. $232; $269

e. $232; $256

Question 19

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A windshield is a _____ when it leaves the production line but is a _____ when installed on a partially-built vehicle

Select one:

a. raw material; work-in-progress

b. finished good; raw material

c. finished good; work-in-progress

d. raw material; finished good

e. work-in-progress; finished good

Question 20

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Southern Mills sells handmade cotton goods to national retail chains, to regional wholesale firms, and to small specialty shops. You would expect Southern Mills to:

Select one:

a. lengthen its normal credit period for a small specialty shop that is experiencing financial distress.

b. demand a shorter credit period for any new product it brings to market.

c. offer the least favorable credit terms to the small specialty shops.

d. offer the same credit terms to both the national retailers and the small specialty shops.

e. offer longer credit periods in the geographic areas that represent the least competitive markets.

Explanation / Answer

Answer(b)  Buying extra inventory because a key supplier offered a special one-time discount is a speculative motive for holding cash.

Answer(c) The carrying cost of granting credit are:

I.the losses incurred when customers do not pay
II. required return on receivables
III. costs of the credit application process
IV. costs expended in the collection process

Answer18(b)

Answer19(c)

A windshield is a Finished Goods when it leaves the production line but is a Work in Process when installed on a partially-built vehicle

.Answer(e)

offer longer credit periods in the geographic areas that represent the least competitive markets

Annual demand 3500 No of Plants per order 400 Average Orders 400/2 200 Carrying cost per unit 1.16 Carrying Cost(200*1.16) 232 Total Orders : 3500/400 8.75 Cost per order 28 Annual restocking Cost 245

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