CFC Working Capital Management 2

Question 1

If a company's DIO is 45 days, DSO is 30 days, and DPO is 25 days, what is the Cash Conversion Cycle?

Accepted Answer

50 days

Answer

CCC = DIO + DSO - DPO = 45 + 30 - 25 = 50 days, representing the net days to convert operations into cash inflows.

Question 2

Which inventory management approach aims to minimize holding costs by receiving goods only as they are needed for production or sale?

Accepted Answer

Just-In-Time (JIT)

Answer

Just-In-Time (JIT) minimizes inventory holding and storage costs by scheduling deliveries to arrive precisely when needed, reducing excess stock.

Question 3

A company has $90,000 in accounts receivable and annual credit sales of $1,095,000. What is the DSO (use 365 days)?

Accepted Answer

30 days

Answer

DSO = (Accounts Receivable / Annual Credit Sales) × 365 = ($90,000 / $1,095,000) × 365 = 30 days.

Question 4

Which technique allows a company to sell its accounts receivable to a third party at a discount to obtain immediate cash?

Accepted Answer

Factoring

Answer

Factoring involves selling accounts receivable to a financial institution (factor) at a discount, immediately improving cash flow without waiting for customers to pay.

Question 5

What is the Economic Order Quantity (EOQ) model designed to minimize?

Accepted Answer

Total inventory ordering and holding costs combined

Answer

EOQ minimizes total inventory costs by finding the optimal order size that balances ordering costs (per order placed) against holding costs (per unit stored per period).

(CFC) Certified Financial Controller Practice Test

(CFC) Certified Financial Controller Practice Test

CFC Working Capital Management 2