CIA Working Capital Management 2

Question 1

A company's accounts receivable balance is $150,000 and annual credit sales are $900,000. What is the days sales outstanding (DSO)?

Accepted Answer

60.8 days

Answer

DSO = (Accounts Receivable / Annual Credit Sales) × 365 = ($150,000 / $900,000) × 365 ≈ 60.8 days.

Question 2

Which inventory management technique is designed to minimize holding costs by receiving goods only as they are needed?

Accepted Answer

Just-in-time (JIT)

Answer

Just-in-time (JIT) inventory management aims to reduce holding costs by aligning deliveries with production demand, minimizing inventory on hand.

Question 3

The economic order quantity (EOQ) model minimizes the total of which two costs?

Accepted Answer

Ordering costs and holding costs

Answer

EOQ balances ordering costs (costs per order placed) and holding costs (costs of carrying inventory), finding the quantity that minimizes their total.

Question 4

A conservative working capital policy typically results in:

Accepted Answer

Lower risk but higher financing costs

Answer

A conservative policy holds more current assets and uses long-term financing, reducing liquidity risk but increasing the cost of capital.

Question 5

When a company offers credit terms of '2/10, net 30', what does this mean?

Accepted Answer

A 2% discount is available if paid within 10 days; full amount due in 30 days

Answer

'2/10, net 30' means the buyer may deduct 2% if payment is made within 10 days; otherwise, the full invoice amount is due within 30 days.

(CIA) Certified Industrial Accountant Practice Test

(CIA) Certified Industrial Accountant Practice Test

CIA Working Capital Management 2