Question 1

On average, your firm sells $38,700 of items on credit each day. The firm's average operating cycle is 49 days and it acquires and sells inventory, on average, every 17 days. What is the average accounts receivable balance?

Accepted Answer

A)  $657,900
B)  $848,000
C)  $1,238,400
D)  $1,315,500
E)  $1,896,300F) C) and D)
G) A) and E)

Question 2

The incremental investment in receivables under the accounts receivable approach is equal to:

Accepted Answer

A)  P - vQ'.
B)  PQ'.
C)  PQ + v(Q' - Q) .
D)  P(Q' - Q) .
E)  PQ(Q' - Q) .F) B) and D)
G) A) and E)

Question 3

A cash discount of 2/5, net 30:

Accepted Answer

A)  grants customers 30 days to pay after the discount period expires.
B)  offers customers a maximum of 30 days credit.
C)  grants free credit for a period of 30 days.
D)  charges a higher price to a cash customer than to a customer who pays in 2 days.
E)  grants customers 2 days to pay if they want the 5 percent discount.F) C) and E)
G) C) and D)

Question 4

Any written proof that a customer owes you money for goods or services provided is referred to as a(n) :

Accepted Answer

A)  account document.
B)  sales draft.
C)  credit instrument.
D)  commercial paper.
E)  letter of debt.F) B) and D)
G) All of the above

Question 5

When credit policy is at the optimal point, the:

Accepted Answer

A)  total costs of granting credit will be maximized.
B)  carrying costs of credit will be equal to zero.
C)  opportunity cost of credit will be equal to zero.
D)  carrying costs will equal the opportunity costs.
E)  total costs will equal the opportunity costs.F) A) and E)
G) B) and E)

Question 6

Under credit terms of 1/5, net 15, customers should:

Accepted Answer

A)  always pay on the 15th day.
B)  take the 5 percent discount and pay immediately.
C)  take the discount and pay on the day following the day of sale.
D)  either take the discount or pay on the 15th day.
E)  both take the discount and pay on the 15th day.F) B) and D)
G) A) and E)

Question 7

Preston Milled Products currently sells a product with a variable cost per unit of $21 and a unit selling price of $40. At the present time, the firm only sells on a cash basis with monthly sales of 2,800 units. The monthly interest rate is 0.5 percent. What is the switch break-even point if the firm switched to a net 30 credit policy? Assume the selling price per unit and the variable costs per unit remain constant.

Accepted Answer

A)  2,830 units
B)  2,910 units
C)  3,333 units
D)  3,414 units
E)  3,526 unitsF) A) and D)
G) B) and C)

Question 8

Keep M Flying is a wholesaler that stocks engine components and test equipment for the commercial aircraft industry. A new customer has placed an order for eight high-bypass turbine engines, which increase fuel economy. The variable cost is $1.7 million per unit, and the credit price is $2.1 million each. Credit is extended for one period. Based on historical experience, payment for about 1 out of every 240 such orders is never collected. The required return is 2.8 percent per period. What is the NPV per unit if this is a one-time order?

Accepted Answer

A)  $316,407
B)  $328,819
C)  $334,290
D)  $342,802
E)  $351,056F) B) and C)
G) None of the above

Question 9

Scott purchased a shovel, a rake, and a wheelbarrow from The Local Hardware Store yesterday. Today, the store issued a bill for these items and mailed it to Scott. What is the name given to this bill?

Accepted Answer

A)  ledger statement
B)  warranty
C)  indenture
D)  receipt
E)  invoiceF) A) and B)
G) All of the above

Question 10

Cohen Industrial Products uses 2,100 switch assemblies per week and then reorders another 2,100. The relevant carrying cost per switch assembly is $20, and the fixed order cost is $300. What is the EOQ?

Accepted Answer

A)  1,279.84
B)  1,434.14
C)  1,809.97
D)  2,278.42
E)  2,698.15F) B) and D)
G) All of the above

Question 11

The accounts receivable approach to credit policy supports the theory that:

Accepted Answer

A)  a firm's risk of offering credit to a new customer is limited to the variable cost of the sold items.
B)  the best credit policy is an all-cash policy.
C)  the cost of offering credit to a new customer is the same as the cost of offering credit to an existing customer.
D)  foregoing cash discounts is a method of obtaining inexpensive short-term financing.
E)  the default risk of a credit policy is the same as the default risk under an all cash-policy if your customers remain the same.F) C) and D)
G) D) and E)

Question 12

Which one of the following statements is correct in regards to credit periods?

Accepted Answer

A)  Perishable items tend to have longer credit periods.
B)  Items with low markups tend to have longer credit periods.
C)  Smaller accounts tend to have longer credit periods.
D)  Different customers may be offered different credit periods by the same firm.
E)  Newer products tend to have shorter credit periods.F) B) and E)
G) A) and E)

Question 13

The optimal amount of credit equates the incremental costs of carrying the increase in accounts receivable to the incremental:

Accepted Answer

A)  decrease in the cash cycle.
B)  benefit from decreasing the inventory level.
C)  cash flows from increased sales.
D)  increase in bad debts.
E)  gain in net profits.F) B) and E)
G) A) and C)

Question 14

Assume all suppliers to a large retail chain offer credit terms of 2/10, net 30. The retail chain consistently takes the 2 percent discount and pays in 60 days. When pressed on the issue, the retail chain tells the suppliers they can either accept the payments as they currently are or lose the business. Is this ethical?
 How might this impact a small supplier versus a large supplier?
 Explain.

Accepted Answer

This question can lead to a lively discu...

Question 15

The Cycle Shoppe has decided to offer credit to its customers during the spring selling season. Sales are expected to be 330 bicycles. The average cost to the shop of a bicycle is $300. The owner knows that only 93 percent of the customers will be able to make their payments. To identify the remaining 7 percent, she is considering subscribing to a credit agency. The initial charge for this service is $540, with an additional charge of $6 per individual report. What is the amount of the net savings from subscribing to the credit agency?

Accepted Answer

A)  $3,790
B)  $3,920
C)  $4,080
D)  $4,410
E)  $4,950F) A) and C)
G) C) and E)

Question 16

Which one of the following is a system for managing demand-dependent inventories that minimizes the inventory levels of a firm?

Accepted Answer

A)  just-in-time inventory
B)  turnover planning
C)  net working capital planning
D)  inventory scoring
E)  inventory rankingF) A) and B)
G) B) and E)

Question 17

Which one of the following statements is correct?

Accepted Answer

A)  An aging schedule helps identify those customers who are the most delinquent.
B)  The percentage of total receivables that falls within a certain time period on an aging schedule will remain constant over time even if the firm has seasonal sales.
C)  Normally firms call their delinquent customers prior to sending them a past due letter.
D)  A constant average collection period over a period of time is cause for concern.
E)  It is common practice when a customer files for bankruptcy to sell that customer's receivable at face value.F) C) and D)
G) All of the above

Exam 20: Credit and Inventory Management

Correct Answer
verified

The optimal amount of credit equates the incremental costs of carrying the increase in accounts receivable to the incremental:

Correct Answer
verified

Under credit terms of 1/5, net 15, customers should:

Correct Answer
verified

Cohen Industrial Products uses 2,100 switch assemblies per week and then reorders another 2,100. The relevant carrying cost per switch assembly is $20, and the fixed order cost is $300. What is the EOQ?

Correct Answer
verified

Any written proof that a customer owes you money for goods or services provided is referred to as a(n) :

Correct Answer
verified

Which one of the following is a system for managing demand-dependent inventories that minimizes the inventory levels of a firm?

Correct Answer
verified

The accounts receivable approach to credit policy supports the theory that:

Correct Answer
verified

Correct Answer
verified
This question can lead to a lively discu...
View Answer

Which one of the following statements is correct in regards to credit periods?

Correct Answer
verified

Correct Answer
verified

Scott purchased a shovel, a rake, and a wheelbarrow from The Local Hardware Store yesterday. Today, the store issued a bill for these items and mailed it to Scott. What is the name given to this bill?

Correct Answer
verified

A cash discount of 2/5, net 30:

Correct Answer
verified

On average, your firm sells $38,700 of items on credit each day. The firm's average operating cycle is 49 days and it acquires and sells inventory, on average, every 17 days. What is the average accounts receivable balance?

Correct Answer
verified

The incremental investment in receivables under the accounts receivable approach is equal to:

Correct Answer
verified

Which one of the following statements is correct?

Correct Answer
verified

Correct Answer
verified

When credit policy is at the optimal point, the:

Correct Answer
verified

Exam 20: Credit and Inventory Management

Correct AnswerverifiedShow Answer

The optimal amount of credit equates the incremental costs of carrying the increase in accounts receivable to the incremental:

Correct AnswerverifiedShow Answer

Under credit terms of 1/5, net 15, customers should:

Correct AnswerverifiedShow Answer

Cohen Industrial Products uses 2,100 switch assemblies per week and then reorders another 2,100. The relevant carrying cost per switch assembly is $20, and the fixed order cost is $300. What is the EOQ?

Correct AnswerverifiedShow Answer

Any written proof that a customer owes you money for goods or services provided is referred to as a(n) :

Correct AnswerverifiedShow Answer

Which one of the following is a system for managing demand-dependent inventories that minimizes the inventory levels of a firm?

Correct AnswerverifiedShow Answer

The accounts receivable approach to credit policy supports the theory that:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThis question can lead to a lively discu...View AnswerShow Answer

Which one of the following statements is correct in regards to credit periods?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Scott purchased a shovel, a rake, and a wheelbarrow from The Local Hardware Store yesterday. Today, the store issued a bill for these items and mailed it to Scott. What is the name given to this bill?

Correct AnswerverifiedShow Answer

A cash discount of 2/5, net 30:

Correct AnswerverifiedShow Answer

On average, your firm sells $38,700 of items on credit each day. The firm's average operating cycle is 49 days and it acquires and sells inventory, on average, every 17 days. What is the average accounts receivable balance?

Correct AnswerverifiedShow Answer

The incremental investment in receivables under the accounts receivable approach is equal to:

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When credit policy is at the optimal point, the:

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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verified

Correct Answer
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Correct Answer
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This question can lead to a lively discu...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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