The Lumber Mart recently replaced its management team. As a result, the firm is implementing a restrictive short-term policy in place of the flexible policy under which the firm had been operating. Which of the following should the employees expect as a result of this policy change?
I. reduction in sales due to stock outs
II. greater inventory selection
III. decreased sales due to the new accounts receivable credit policy
IV. decreased investment in marketable securities
A. I and II only
B. II and IV only
C. I, II, and IV only
D. I, III, and IV only
E. I, II, III, and IV

We are told in the scenario that ''the firm is implementing a restrictive short-term policy in place of the flexible policy under which the firm had been operating.''

A major feature of the new restrictive short-term policy is that it targets a low current assets to sales ratio.

The fore-going implies that the firm will want to keep a slim current asset portion of the balance which will affect the components of the current assets of Lumber Mart.

Therefore there will be a possibility of reduction in sales due to stock outs because the company will be keeping very low inventory as a result of this new policy.

Secondly, There could be decreased sales due to new accounts receivable credit policy because the company will want to reduce accounts receivable and may prefer to sell mostly on cash basis or reduce credit days .

Lastly, since marketable securities are a current asset component, we would expect decreased investments in this area as well.