FIN 480 ACTUAL FINAL EXAM QUESTIONS AND
ANSWERS SURE A+
✔✔What does ARCC depend on? - ✔✔Size of receivables, Variable cost portion of
sales, Cost of funds (interest/opportunity cost)
✔✔Why are only variable costs included in ARCC? - ✔✔Only variable costs are
included because fixed costs are incurred regardless of credit policy.
✔✔Bad Debt Losses - ✔✔Portion of sales that the firm cannot collect.
✔✔When do Bad Debt Losses increase? - ✔✔Credit standards are loosened, Riskier
customers are approved
✔✔Discount Expense - ✔✔Cost of offering price reductions for early payment.
✔✔When does Discount Expense increase? - ✔✔Discount percentage rises, More
customers take the discount
✔✔What does the 0-discount period bucket represent? - ✔✔customers eligible for early
payment discount
✔✔What does the End of discount to credit period bucket represent? - ✔✔still current
✔✔What does the Beyond credit period bucket represent? - ✔✔overdue (increasing risk
as time passes)
✔✔What data source does an aging schedule use? - ✔✔Uses internal accounting data
(not public financial statements)
✔✔Ordering Costs - ✔✔Costs associated with placing and receiving orders
✔✔Carrying (Holding) Costs - ✔✔Costs of keeping inventory over time
✔✔Shortage (Stockout) Costs - ✔✔Costs when inventory runs out
✔✔Outsourcing Inventory - ✔✔Hiring a third party to manage storage and fulfillment.
✔✔Inventory Control - ✔✔Ensures inventory is: Properly stored, Protected from
theft/damage, Accurately recorded
✔✔Cycle Counts - ✔✔Regular sampling checks of inventory instead of counting
everything at once.
, ✔✔Daily cycle counts - ✔✔partial checks
✔✔Quarterly/Half-year counts - ✔✔full counts
✔✔Wall-to-wall count (EOY) - ✔✔complete inventory count
✔✔Inventory Audit - ✔✔A full verification of inventory.
✔✔Economic Order Quantity (EOQ) - ✔✔Determines the optimal order size that
minimizes total inventory cost
✔✔Continuous Order System - ✔✔Orders a fixed quantity whenever inventory hits a
minimum level (reorder point)
✔✔Periodic System - ✔✔Orders inventory at fixed time intervals, quantity varies
✔✔What does EOQ balance? - ✔✔Ordering costs (ordering frequently) and Carrying
costs (holding too much inventory)
✔✔What are the assumptions of EOQ? - ✔✔Demand is constant and predictable, Lead
time is constant, No shortages allowed, No safety stock, Stockout costs are ignored
✔✔What are the advantages of outsourcing inventory? - ✔✔Frees up resources, No
need to build/manage warehouses
✔✔What are the disadvantages of outsourcing inventory? - ✔✔Less control over
inventory, Potentially higher costs
✔✔What is the key idea of Inventory Control? - ✔✔Physical inventory must match
system records
✔✔What is the process for Cycle Counts? - ✔✔System selects items → physical count
→ compare → investigate discrepancies
✔✔What are the key features of an Inventory Audit? - ✔✔All transactions are
temporarily frozen, 100% physical count is performed, Differences are investigated and
corrected
✔✔ Fixed costs - ✔✔Stay the same regardless of production level (within limits)
✔✔Variable costs - ✔✔Change directly with production
✔✔Break-even point - ✔✔Total revenue = total costs; Profit = zero
ANSWERS SURE A+
✔✔What does ARCC depend on? - ✔✔Size of receivables, Variable cost portion of
sales, Cost of funds (interest/opportunity cost)
✔✔Why are only variable costs included in ARCC? - ✔✔Only variable costs are
included because fixed costs are incurred regardless of credit policy.
✔✔Bad Debt Losses - ✔✔Portion of sales that the firm cannot collect.
✔✔When do Bad Debt Losses increase? - ✔✔Credit standards are loosened, Riskier
customers are approved
✔✔Discount Expense - ✔✔Cost of offering price reductions for early payment.
✔✔When does Discount Expense increase? - ✔✔Discount percentage rises, More
customers take the discount
✔✔What does the 0-discount period bucket represent? - ✔✔customers eligible for early
payment discount
✔✔What does the End of discount to credit period bucket represent? - ✔✔still current
✔✔What does the Beyond credit period bucket represent? - ✔✔overdue (increasing risk
as time passes)
✔✔What data source does an aging schedule use? - ✔✔Uses internal accounting data
(not public financial statements)
✔✔Ordering Costs - ✔✔Costs associated with placing and receiving orders
✔✔Carrying (Holding) Costs - ✔✔Costs of keeping inventory over time
✔✔Shortage (Stockout) Costs - ✔✔Costs when inventory runs out
✔✔Outsourcing Inventory - ✔✔Hiring a third party to manage storage and fulfillment.
✔✔Inventory Control - ✔✔Ensures inventory is: Properly stored, Protected from
theft/damage, Accurately recorded
✔✔Cycle Counts - ✔✔Regular sampling checks of inventory instead of counting
everything at once.
, ✔✔Daily cycle counts - ✔✔partial checks
✔✔Quarterly/Half-year counts - ✔✔full counts
✔✔Wall-to-wall count (EOY) - ✔✔complete inventory count
✔✔Inventory Audit - ✔✔A full verification of inventory.
✔✔Economic Order Quantity (EOQ) - ✔✔Determines the optimal order size that
minimizes total inventory cost
✔✔Continuous Order System - ✔✔Orders a fixed quantity whenever inventory hits a
minimum level (reorder point)
✔✔Periodic System - ✔✔Orders inventory at fixed time intervals, quantity varies
✔✔What does EOQ balance? - ✔✔Ordering costs (ordering frequently) and Carrying
costs (holding too much inventory)
✔✔What are the assumptions of EOQ? - ✔✔Demand is constant and predictable, Lead
time is constant, No shortages allowed, No safety stock, Stockout costs are ignored
✔✔What are the advantages of outsourcing inventory? - ✔✔Frees up resources, No
need to build/manage warehouses
✔✔What are the disadvantages of outsourcing inventory? - ✔✔Less control over
inventory, Potentially higher costs
✔✔What is the key idea of Inventory Control? - ✔✔Physical inventory must match
system records
✔✔What is the process for Cycle Counts? - ✔✔System selects items → physical count
→ compare → investigate discrepancies
✔✔What are the key features of an Inventory Audit? - ✔✔All transactions are
temporarily frozen, 100% physical count is performed, Differences are investigated and
corrected
✔✔ Fixed costs - ✔✔Stay the same regardless of production level (within limits)
✔✔Variable costs - ✔✔Change directly with production
✔✔Break-even point - ✔✔Total revenue = total costs; Profit = zero
