A Firm Has Annual Operating Outlays of $1,800,000 and a Cash

question 170

Multiple Choice

A firm has annual operating outlays of $1,800,000 and a cash conversion cycle of 60 days. If the firm currently pays 12 percent for negotiated financing and reduces its cash conversion cycle to 50 days, the annual savings is

• A) $50,000.
• B) $200,000.
• C) $ 6,000.
• D) $216,000.

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Definitions:

Activity Cost Pools

Activity Cost Pools are aggregations of all the costs associated with particular activities used in activity-based costing to allocate overhead costs more accurately.

Predetermined Overhead Rates

Rates used to apply manufacturing overhead to products or job orders, calculated in advance based on estimated overhead costs and activity levels.

Activity-Based Costing

A method of costing that identifies activities in an organization and assigns the cost of each activity to products or services according to the actual consumption of each.

Expected Activity

This term refers to the estimated level of operations or production expected to be achieved in a future period.