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WorksheetsMidterm Examination - Financial Management
Total questions: 51
Worksheet time: 53mins
A warehouse manager is asked what EOQ stands for during a company seminar. What does EOQ mean?
Economic Order Quantity
Estimated Order Queue
Essential Operating Quote
Emergency Order Quota
A supplier offers credit terms of 2/10, net 30. What does “2” represent?
2 days to pay
2% discount
2 months to pay
2-day float time
What is “safety stock” in inventory management?
Extra inventory held to prevent stockouts
Hazard-proof materials
Reserved goods for VIP clients
Insurance-protected supplies
What does “JIT” stand for in operations?
Joint Inventory Template
Just-in-Time
Job Integration Technique
Junior Inventory Tracking
What is a “trade credit”?
Loan taken from employees
Borrowing goods now and paying later
Selling goods at a loss
Government subsidy
A retail manager says, “We follow JIT to reduce warehouse expenses.” What is the main benefit he is referring to?
Faster marketing campaigns
Lower carrying costs
Higher selling prices
More product variety
A company maintains high safety stock because its suppliers are often late. What problem is the safety stock addressing?
Seasonal sales ranking
Lead time variability
Tax deductions
Employee turnover
A firm sees “2/10, net 30” on an invoice and decides not to take the discount. How many days do they still have to pay?
10 days
15 days
30 days
20 days
A supplier extends credit only to customers with strong payment history and good financials. What credit policy element is this?
Credit Terms
Credit Standards
Credit Monitoring
Collection Policy
Why would a company stretch its accounts payable intentionally?
To appear more profitable
To delay payment without hurting credit reputation
To reduce inventory safety stock
To increase wages
A company sells 1,000 units per month. Each order costs ₱500 to process, and the carrying cost per unit is ₱20 annually. What decision tool should the manager use to compute the optimal order size?
JIT System
EOQ Formula
ABC Analysis
FIFO Method
A wholesaler receives credit terms of 3/15, net 45 but pays on day 20. What did the company lose by doing this?
Opportunity to stretch payables
Chance to take a 3% discount
Rights to future supply
Access to secured credit
A firm observes that 30% of its receivables are unpaid past 45 days. What receivables tool should they apply to highlight aging accounts?
Collection Policy
Credit Scoring
Aging Schedule
Discount Incentive
A manufacturing firm fears stockouts during peak season. Which action best applies inventory control?
Reduce order size
Increase safety stock
Shorten credit terms
Sell at discount
A small business needs ₱300,000 but has no collateral. Which short-term financing source suits them best?
Secured bank loan
Trade credit
Commercial paper
Chattel mortgage
A firm is choosing between two suppliers: • Supplier A offers a lower unit price but a longer lead time. • Supplier B has a slightly higher price but instant delivery. If the company follows a JIT system, which supplier is more suitable and why?
Supplier A, because cost is always the priority
Supplier B, because JIT minimizes storage by relying on quick delivery
Supplier A, because a long lead time allows more planning
Either one, since price and delivery are unrelated
A company notices that its EOQ decreased this year. Which of the following could be the cause?
Increase in ordering cost
Reduction in carrying cost
Higher demand
Longer lead time
Two firms follow the same credit terms, but one collects faster. What likely differs between them?
Credit monitoring rigor
Product pricing strategy
Safety stock policy
EOQ method
A business delays supplier payments to preserve cash, but its credit rating drops. What does this indicate?
Stretching payables beyond acceptable limits
Applying proper cash discount strategy
Overuse of commercial paper
Too much safety stock
A company reports high bad debt expenses. Analyze the most probable weakness.
Excessive safety stock
Weak credit screening
Low EOQ calculation
Too much trade credit from suppliers
A retail company is deciding between two policies: • Policy X: “Strict credit approval — only high-score customers.” • Policy Y: “Flexible credit — more sales but higher risk.” Which policy is better for a company facing slow sales but stable cash reserves?
Policy X
Policy Y
Use both randomly
Neither
A firm is considering eliminating safety stock to reduce storage cost. Should they proceed?
Yes, because safety stock only wastes money
No, because it increases stockout risk
Yes, if sales are declining
No, if lead time is fixed
A company can either: Take a 2% discount by paying on Day 10 or Wait until Day 60 and pay full amount. Which is financially smarter assuming they have available cash?
Take discount
Delay payment
Pay half early, half later
Renegotiate terms
A business is evaluating two financing options: Which is better if the company needs low-cost funding?
Option A
Option B
Both are equal
Neither
A firm suggests extending credit to high-risk clients to increase market share. What is the primary concern?
Excess inventory
Increased bad debts
Longer ordering time
Lower carrying cost
A company currently pays suppliers on Day 30 but is offered 3/10, net 45 terms. If the firm’s cost of capital is 8%, what is the best decision?
Continue paying on Day 30
Take the 3% discount on Day 10
Delay to Day 45
Request longer terms
A manufacturing firm is debating between building its own warehouse or outsourcing storage to a 3PL (Third-Party Logistics Provider). Which factor should carry the most weight in evaluating the decision?
Exterior design of warehouse
Long-term cost-benefit and scalability
Employee preference
Location prestige
A company offers 90-day credit terms to increase sales volume but notices declining cash reserves. What should management evaluate first before keeping the policy?
Customer demographics
Average collection period vs cash operating cycle
Number of suppliers
Inventory turnover rate
A business is comparing two credit customers:
Customer A
Customer B
Both equally
Neither
A company wants to reduce bad debts without hurting sales. Which policy provides the best balance?
Reject all low-score applicants
Require collateral or guarantors for marginal clients
Accept all buyers freely
Raise selling price dramatically
Commercial paper is a short-term, unsecured promissory note issued by strong companies.
True
False
Credit monitoring helps firms identify customers who delay payments.
True
False
In EOQ, the order cost and carrying cost are balanced to minimize total inventory cost.
True
False
In receivables management, offering longer credit periods always increases profit.
True
False
A company applying JIT must have reliable suppliers and accurate demand forecasts.
True
False
Offering a cash discount always reduces profit.
True
False
A firm with excessive inventory but poor cash flow is likely prioritizing customer service over liquidity.
True
False
High accounts receivable turnover indicates customers are paying slowly.
True
False
If a company’s average collection period exceeds the industry standard, it should tighten collection procedures.
True
False
Using commercial paper is ideal for small startups with low credit ratings.
True
False
Identify the term: “The time between placing an order and receiving the goods.”
(a)
Identify the concept: "The cost of storing inventory, including rent, insurance, and depreciation."
(a)
Identify the financing source: "A bank allows a business to withdraw funds up to a certain amount repeatedly without reapplying."
(a)
Identify: "A system that integrates suppliers and buyers through one platform to check real-time inventory and delivery status."
(a)
Identify: "A short-term loan secured by unpaid customer invoices."
(a)
Identify: "A discount given to customers who pay before the due date."
(a)
Identify: A distributor has high storage costs due to slow-moving inventory. What system can reduce idle stock?
(a)
Identify: A company tracks the average number of days to collect payment from customers. What metric are they using?
(a)
Identify: A firm offers 1/10, net 60 terms, hoping to speed up receivables. Which part of the credit policy is being adjusted?
(a)
Identify and Analyze: A company receives "1/15, net 90" terms. They choose to pay on day 15. What strategic decision are they making?
Taking the cash discount
Delaying payment to the maximum period
Ignoring the discount opportunity
Paying interest on late payment
A company using the Economic Order Quantity (EOQ) model is considering shifting to a Just-in-Time (JIT) system. As a financial manager, evaluate the advantages and disadvantages of switching from EOQ to JIT. Conclude with your recommendation.
