Working Capital Management Flashcards
7 cards from real CPFM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Working Capital Management flashcards as text
The Economic Order Quantity (EOQ) model minimizes the sum of which two costs?
Answer: Ordering cost and carrying cost
EOQ identifies the order size that minimizes the combined ordering and carrying (holding) costs.
A firm offers credit terms of '2/10, net 30.' What does the '2/10' portion mean?
Answer: A 2% discount if paid within 10 days
'2/10' means the buyer may take a 2% discount if the invoice is paid within 10 days.
Which inventory technique aims to minimize inventory by receiving goods only as they are needed in production?
Answer: Just-in-time (JIT)
Just-in-time minimizes inventory levels by synchronizing deliveries with production needs.
In ABC inventory analysis, 'A' items are typically:
Answer: High-value items requiring tight control
'A' items represent a small number of high-value items that warrant the tightest inventory control.
Holding safety stock primarily protects a company against:
Answer: Demand and lead-time uncertainty causing stockouts
Safety stock is a buffer held to prevent stockouts when demand or supplier lead times are uncertain.
If a company increases its days payable outstanding without harming supplier relationships, the effect on its cash conversion cycle is to:
Answer: Shorten it
Taking longer to pay suppliers (higher DPO) reduces the cash conversion cycle, all else equal.
The annualized cost of forgoing a '2/10, net 30' discount is approximately what (using the standard 360-day approximation)?
Answer: About 37%
Cost ≈ (2/98) × (360/20) ≈ 37%, making it expensive to forgo the discount.