Your Company Keeps 15 Days of Materials Inventory on Hand

question 41

Multiple Choice

Your company keeps 15 days of materials inventory on hand to avoid shutdowns due to materials shortages. Carrying costs average $5,000 per day. A competitor keeps 12 days of inventory on hand, and the competitor's carrying costs average $3,000 per day. The non-value-added costs would be

• A) $-0-.
• B) $75,000.
• C) $30,000.
• D) $80,000.

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Definitions:

Capital Budget

An estimation of the expenses and revenues related to long-term investment decisions of a company.

Dividend Payout Ratio

A financial metric that measures the proportion of earnings a company pays to its shareholders in the form of dividends, expressed as a percentage of its earnings.

Equity Capital

Capital acquired by a corporation in return for partial ownership of the corporation.

Stock Split

A corporate action in which a company divides its existing shares into multiple shares to boost liquidity.