Current assets 200000 current liabilities 165000

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Current assets $200,000 Current liabilities $165,000 Fixed assets 100,000 Long-term debt 100,000 Total assets $300,000 Equity 35,000 Total debt & equity $300,000 Which one of the following alternatives will provide the resources to expand the inventory while lowering the total cost of debt and satisfying the loan covenant? a. Increase both accounts payable and inventory by $25,000. b. Sell fixed assets with a book value of $20,000 for $25,000 and use the proceeds to increase inventory. c. Borrow short-term funds of $25,000, and purchase inventory of $25,000. d. Collect $25,000 accounts receivable; use $10,000 to purchase inventory and use the balance to reduce short-term debt.
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194 130. CSO: 2B4e LOS: 2B4v All of the following are carrying costs of inventory except a. storage costs. b. insurance. c. shipping costs. d. opportunity costs. 131. CSO: 2B4e LOS: 2B4v Valley Inc. uses 400 lbs. of a rare isotope per year. The isotope costs $500 per lb., but the supplier is offering a quantity discount of 2% for order sizes between 30 and 79 lbs., and a 6% discount for order sizes of 80 lbs. or more. The ordering costs are $200. Carrying costs are $100 per lb. of material and are not affected by the discounts. If the purchasing manager places eight orders of 50 lbs. each, the total cost of ordering and carrying inventory, including discounts lost, will be a. $1,600. b. $4,100. c. $6,600. d. $12,100. 132. CSO: 2B4e LOS: 2B4v A review of the inventories of Cedar Grove Company shows the following cost data for entertainment centers. Invoice price $400.00 per unit Freight and insurance on shipment 20.00 per unit Insurance on inventory 15.00 per unit Unloading 140.00 per order Cost of placing orders 10.00 per order Cost of capital 25% What are the total carrying costs of inventory for an entertainment center? a. $105. b. $115. c. $120. d. $420.
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195 133. CSO: 2B4e LOS: 2B4v Paint Corporation expects to use 48,000 gallons of paint per year costing $12 per gallon. Inventory carrying cost is equal to 20% of the purchase price. The company uses its inventory at a constant rate. The lead time for placing the order is 3 days, and Paint Corporation holds 2,400 gallons of paint as safety stock. If the company orders 2,000 gallons of paint per order, what is the cost of carrying inventory? a. $2,400. b. $5,280. c. $5,760. d. $8,160. 134. CSO: 2B4e LOS: 2B4w James Smith is the new manager of inventory at American Electronics, a major retailer. He is developing an inventory control system, and knows he should consider establishing a safety stock level. The safety stock can protect against all of the following risks, except for the possibility that a. customers cannot find the merchandise they want, and they will go to the competition. b. shipments of merchandise from the manufacturers is delayed by as much as one week. c. the distribution of daily sales will have a large variance, due to holidays, weather, advertising, and weekly shopping habits. d. new competition may open in the company’s market area.
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