ACCOUNTS RECEIVABLE MANAGEMENT

1. Northern Company’s budgeted sales for the coming year are P40,500,000 of which 80% are
expected to be credit sales at terms of n/30. Northern estimates that a proposed relaxation of
credit standards would increase credit sales by 20% and increase the average collection period
from 30 days to 40 days. Based on a 360-day year, the proposed relaxation of credit standards
would result in an expected increase in the average accounts receivable balance of:
a. P540,000
b. P2,700,000
c. P900,000
d. P1,620,000
2. EXO Publishing is considering a change in its credit terms from n/30 to 2/10, n/30. The
company’s budgeted sales for the coming year is P24,000,000, of which 90% is expected to be
made on credit. If the new credit terms are adopted, EXO estimates that discounts would be
taken on 50% on credit sales; however, uncollectible accounts would be unchanged. The new
credit terms would result in expected discounts taken in the coming year of:
a. P216,000
b. P432,000
c. P240,000
d. P480,000
3. Ramir Electronics sells on terms of net 30 days, but its accounts receivable average 20 days
overdue. Assuming a 360-day year and annual credit sales of P1,800,000, the book value of
Ramir’s receivable is:
a. P150,000
b. P100,000
c. P50,000
d. P250,000
4. Flint Company’s average collection period is 20 days. The average daily sales is P5,000. All of the
company’s customers pay by credit card. How much is the company’s average accounts
receivable balance?
a. P0
b. P100,000
c. P50,000
d. P5,000
5. Donny Traders sells on credit terms of 2/10, net 30. Average daily credit sales is P50,000. On the
average, 70% of the customers avail of the discount and pay on the 10th day after purchase,
while the rest pays on the last day of the credit term. How much is the company’s accounts
receivable balance?
a. P1,500,000
b. P450,000
c. P800,000
d. P1,050,000
INVENTORY MANAGEMENT

Emil Traders, Inc. sells cellphone cases which it buys from a local manufacturer. Emil Traders sells 24,000
cases evenly throughout the year. The cost of carrying one unit in inventory for one year is P11.52 and
the order cost per order is P38.40.

1. What is the economic order quantity?

a. 400
b. 283
c. 200
d. 625
2. If Emil Traders would buy in economic order quantities, the total order costs is:
a. P921,600
b. P2,304
c. P76,800
d. P460,800
3. If Emil Traders would buy I economic order quantities, the total inventory carrying costs per year
is:
a. P276,480
b. P2,304
c. P2,304
d. P138,240

The following information is available for Edgar Corporation’s Material X:

Annual usage 12,600 units

Working days per year 360 days
Normal lead time 20 days

The units of Material X are required evenly throughout the year.

4. What is the reorder point?

a. 35 units
b. 20th day
c. 700 units
d. 630 units
5. Assuming occasionally, the company experiences delay in the delivery of Material X, such that
lead time reaches a maximum of 30 days, how many units of safety stock should the company
maintain and what is the reorder point?
a. Safety stock : 350 ; Reorder point : 1,050
b. Safety stock : 350 ; Reorder point : 700
c. Safety stock : 0 ; Reorder point : 1,050
d. Safety stock : 1,050 ; Reorder point : 700