IET 414 exam 2 || with 100% Verified Solutions.
What is Operating Leverage? correct answers extent to which fixed assets and associated fixed
costs are utilized in business. Classified as fixed, variable, or semivariable
What is Leverage? correct answers use of special force or effects to produce more than normal
results from a given course of action. emphasis on employment of fixed cost items to magnify
returns at high levels of operations
What is financial leverage? correct answers reflects amount of debt used in capital structure of
firm. determines how to finance operation. determines performance between two firms with
equal operating capabilities. these are measured by liabilities and net worth
What is the break-even point? How does it relate to a company's profit? correct answers the
production level where total revenues=total expenses. It means no money is being lost but no
profit is being made, you have to produce more to gain profit
Why would businesses hold cash? correct answers -for payments towards planned expenses
- to compensate bank for services provided rather than paying directly for them
- for emergency purposes when cash inflows are less than projected, important in seasonal and
cyclical industries
definition of float correct answers the difference between the firm's recorded amount and amount
credited to firm by bank. Two types:
- mail float- occurs because of time mail takes to be delivered
- clearing float- occurs because of time check takes to be cleared.
What are typical quantitative measurements for accounts receivable collection? correct answers -
avg collection period= accounts receivable/ avg. daily credit sales
-ratio of bad debts to credit sales
- aging of accounts receivable
What are the relationships of EOQ? correct answers operating costs- directly proportional, If the
number of orders placed during the year increases, the annual ordering cost will also increase
carrying costs- depends upon the size of the order placed for inventory. the larger the order size,
the higher the annual holding cost and vice versa
operating cost vs. holding cost- inverse relationship, if operating cost goes down, carrying cost
will increase and vice versa
What are inventory carrying costs? correct answers interest on funds tied up in inventory and the
costs of warehouse space, insurance premiums, and material handling expenses. Implicit cost
associated with the risk of obsolescence or perishability and price change
Benefits of Level Production correct answers allows for maximum efficiency in man-power and
machinery usage
What is Operating Leverage? correct answers extent to which fixed assets and associated fixed
costs are utilized in business. Classified as fixed, variable, or semivariable
What is Leverage? correct answers use of special force or effects to produce more than normal
results from a given course of action. emphasis on employment of fixed cost items to magnify
returns at high levels of operations
What is financial leverage? correct answers reflects amount of debt used in capital structure of
firm. determines how to finance operation. determines performance between two firms with
equal operating capabilities. these are measured by liabilities and net worth
What is the break-even point? How does it relate to a company's profit? correct answers the
production level where total revenues=total expenses. It means no money is being lost but no
profit is being made, you have to produce more to gain profit
Why would businesses hold cash? correct answers -for payments towards planned expenses
- to compensate bank for services provided rather than paying directly for them
- for emergency purposes when cash inflows are less than projected, important in seasonal and
cyclical industries
definition of float correct answers the difference between the firm's recorded amount and amount
credited to firm by bank. Two types:
- mail float- occurs because of time mail takes to be delivered
- clearing float- occurs because of time check takes to be cleared.
What are typical quantitative measurements for accounts receivable collection? correct answers -
avg collection period= accounts receivable/ avg. daily credit sales
-ratio of bad debts to credit sales
- aging of accounts receivable
What are the relationships of EOQ? correct answers operating costs- directly proportional, If the
number of orders placed during the year increases, the annual ordering cost will also increase
carrying costs- depends upon the size of the order placed for inventory. the larger the order size,
the higher the annual holding cost and vice versa
operating cost vs. holding cost- inverse relationship, if operating cost goes down, carrying cost
will increase and vice versa
What are inventory carrying costs? correct answers interest on funds tied up in inventory and the
costs of warehouse space, insurance premiums, and material handling expenses. Implicit cost
associated with the risk of obsolescence or perishability and price change
Benefits of Level Production correct answers allows for maximum efficiency in man-power and
machinery usage
