Question

2) Which of the following is NOT a cost associated with holding inventory?

A) Money tied up in holding inventory is not available for other purposes.

B) Inventory generates storage and insurance costs.

C) The ability to meet a surge in demand for the goods carried in inventory.

D) Items in inventory may become obsolete and unsellable at a profitable price.

3) Which of the following is NOT an example of a type of inventory management activity?

A) JIT or just-in-time inventory control system

B) RFI or radio frequency identification systems.

C) EOQ or economic order quantity formulas.

D) All of the above are forms of inventory control.

4) Which of the following in NOT a potential benefit of granting trade credit?

A) Enhances competitiveness for the firm granting credit.

B) A delay in receiving payment from customers.

C) May assist in generating additional sales.

D) May allow quicker movement of inventory.

5) Which of the following is NOT a potential cost of granting trade credit?

A) Delayed receipt of cash from sales

B) Lost cash due to customers taking an offered discount for earlier payment

C) Lost receipts due to inability of customers to pay agreed to credit terms

D) Increased sales

6) Which of the following trade credit terms for goods and services purchased would be preferred by a firm?

A) 2/10 net 30

B) 3/10 net 45

C) 3/15 net 45

D) Unless we know the firm's cost of borrowing we cannot determine which set of terms is preferred.

Answer 1

Answer 2. C. The ability to meet a surge in demand for the goods carried in inventory. This is not connected to the holding costs of inventory.

Answer 3. B. RFI or radio frequency identification systems. This is not a inventory management activity.

Answer 4. B. A delay in receiving payment from customers. This is a cost of providing credit.

Answer 5. D.  Increased sales. This is a benefit of providing credit.

Answer 6. D. Unless we know the firm's cost of borrowing we cannot determine which set of terms is preferred.