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Managerial Accounting : Working Capital and Short-Term Financing

Please help review my answers. Correct me if I go wrong and explain the correct solution, if needed. The answers I believe to be correct are marked with a "***." Thank you.

Managerial Accounting

1. The cost of a single unit of production in excess of the breakeven point in units is:
A) its fixed cost and variable cost.
B) its fixed cost only.
C) its variable cost only. ***
D) none of the above.

2. What percentage of the contribution margin is profit on units sold in excess of the breakeven point?
A) It's 50% to the contribution margin ratio. ***
B) It's equal to the variable cost ratio.
C) It's equal of the gross profit ratio.
D) It's 100%.
Working Capital and Short-Term Financing Techniques
3. What is the cash conversion cycle for a firm with a receivables period of 40 days, a payables period of 30 days, and an inventory period of 60 days?
A) 10 days ***
B) 50 days
C) 70 days
D) 130 days

4. What is the cash conversion cycle for a firm with $3 million average inventories, $1.5 million average accounts payable, a receivables period of 40 days, and an annual cost of goods sold of $18 million?
A) 14.59 days
B) 46.25 days ***
C) 70.41 days
D) 136.25 days

5. Which of the following would not be included among the costs of carrying inventory?
A) Obsolescence
B) Opportunity cost of capital
C) Raw material cost ***
D) Risk of pilferage

6. When financial managers take action to minimize the carrying costs of current assets, they:
A) are likely to maximize profits.
B) also consider spoilage costs. ***
C) may increase costs due to shortages.
D) engage in the matching of maturities.

7. Which of the following would act to reduce the carrying costs of inventory?
A) The inventory is capable of spoiling.
B) The inventory will rapidly go out of style.
C) General interest rates decrease in the economy.
D) General interest rates increase in the economy. ***
Capital Structure and Long-Term Financing Strategies
8. Which of the following equity concepts would you expect to be least important to a financial analyst?
A) Par value per share
B) Additional paid-in capital ***
C) Retained earnings
D) Net common equity

Solution Preview

I am mentioning all the correct ones:

1. The cost of a single unit of production in excess of the breakeven point in units is:
C) its variable cost only. ***

2. What percentage of the contribution margin is profit on units sold in excess of the breakeven point?
D) It's 100%.
As contribution margin will be the profit because there as fixed costs are already covered.

Working Capital and ...

Solution Summary

Working Capital and Short-Term Financing are investigated.

$2.19