Question 1

Why might firms forego discounts offered by their suppliers even though it is costly to do so?
 What steps might a firm pursue to be able to take these discounts?

Accepted Answer

Firms will forego discounts when there i...

Question 2

You are trying to attract new customers that you feel could become repeat customers. The average selling price of your products is $69 each with a $41 per unit variable cost. The monthly interest rate is 1.2 percent. Your experience tells you that 8 percent of these customers will never pay their bill. What is the value of a new customer who does not default on his or her bill?

Accepted Answer

A)  $1,986
B)  $2,333
C)  $2,617
D)  $4,817
E)  $8,867F) All of the above
G) A) and B)

Question 3

Which one of the following statements is correct if you purchase an item with credit terms of 1/5, net 15?

Accepted Answer

A)  If you pay within 1 day, you will receive a 5 percent discount.
B)  If you pay within 5 days, you will receive a 1 percent discount.
C)  If you do not pay within 15 days, you will be charged interest at a 1.5 percent monthly rate.
D)  If you pay within 15 days, you will receive a 1/5th percent discount.
E)  You must pay the discounted amount within 15 days.F) All of the above
G) None of the above

Question 4

Currently, Glasgow Importers sells 280 units a month at a price of $729 a unit. The firm believes it can increase its sales by an additional 40 units if it switches to a net 30 credit policy. The monthly interest rate is 0.5 percent and the variable cost per unit is $480. What is the net present value of the proposed credit policy switch?

Accepted Answer

A)  -$213,360
B)  -$9,240
C)  $190,200
D)  $1,287,520
E)  $1,768,680F) C) and D)
G) A) and B)

Question 5

The best-selling pair of roller skates The Teen Store offers sells for $79.99 a pair. The store consistently sells 5,700 pairs of these roller skates every year. The fixed costs to order more skates is $68 and the carrying costs are $1.95 per pair. What is the economic order quantity?

Accepted Answer

A)  446 pairs
B)  515 pairs
C)  529 pairs
D)  631 pairs
E)  648 pairsF) A) and E)
G) B) and E)

Question 6

Which two of the following are the key considerations for a seller who is establishing the length of the credit period being offered to a customer?
I. seller's operating cycle
II. customer's operating cycle
III. seller's inventory period
IV. customer's inventory period

Accepted Answer

A)  I and II
B)  II and III
C)  III and IV
D)  II and IV
E)  I and IVF) C) and E)
G) C) and D)

Question 7

Which two of the following are the key elements in determining whether or not a switch from a no-credit policy to a credit policy is advisable?
I. variable cost per unit
II. cash discount percentage
III. credit price
IV. default rate

Accepted Answer

A)  I and III only
B)  II and IV only
C)  II and III only
D)  I and IV only
E)  III and IV onlyF) B) and D)
G) A) and D)

Question 8

Which of the following are frequently used as sources of information when trying to ascertain the creditworthiness of a customer?
I. payment history with similar firms
II. credit reports
III. financial statements
IV. information provided by a bank

Accepted Answer

A)  I and III only
B)  II and IV only
C)  I and II only
D)  I, II, and III only
E)  I, II, III, and IVF) A) and D)
G) None of the above

Question 9

The period of time that extends from the day a credit sale is made until the day the bank credits a firm's account with the payment for that sale is known as the _____ period.

Accepted Answer

A)  float
B)  cash collection
C)  sales
D)  accounts receivable
E)  discountF) A) and D)
G) A) and E)

Question 10

Which one of the following credit instruments is commonly used in international commerce?

Accepted Answer

A)  open account
B)  sight draft
C)  time draft
D)  banker's acceptance
E)  promissory noteF) C) and D)
G) B) and E)

Question 11

When evaluating the creditworthiness of a customer, the term character refers to the:

Accepted Answer

A)  nature of the cash flows of the customer's business.
B)  customer's financial resources.
C)  types of assets the customer wants to pledge as collateral.
D)  customer's willingness to pay bills in a timely fashion.
E)  nature of the customer's line of work.F) A) and D)
G) B) and E)

Question 12

Which do you feel is the more appropriate upper limit for the credit period that a seller offers to a buyer:
 the buyer's operating cycle or the buyer's inventory period?

Accepted Answer

The operating cycle is the sum of the in...

Question 13

You are considering renting a kiosk in the local mall for a period of three months. Any sale you make will be a one-time sale. There is only a 79 percent chance you will collect payment on a credit sale. The product you want to sell has a variable cost of $3.88 and a sales price of $4.99. The monthly interest rate is 1.5 percent. Should you offer people 30 days to pay? Why or why not?

Accepted Answer

A)  yes; because the NPV of a credit sale is $0.09.
B)  yes; because the NPV of a credit sale is $0.03.
C)  no; because the NPV of a credit sale is -$0.08.
D)  no; because the NPV of a credit sale is -$0.02.
E)  It doesn't matter because the NPV of a credit sale is approximately zero.F) C) and D)
G) A) and E)

Question 14

Which one of the following inventory-related costs is considered a shortage cost?

Accepted Answer

A)  storage costs
B)  insurance cost
C)  cost of safety reserves
D)  obsolescence cost
E)  opportunity cost of capital used for inventory purchasesF) All of the above
G) A) and B)

Question 15

Which one of the five Cs of credit refers to the general economic situation in the customer's line of business?

Accepted Answer

A)  capacity
B)  character
C)  conditions
D)  capital
E)  collateralF) All of the above
G) None of the above

Question 16

The EOQ model is designed to determine how much:

Accepted Answer

A)  total inventory a firm needs in any one year.
B)  total inventory costs will be for any one given year.
C)  inventory should be purchased at a time.
D)  inventory will be sold per day.
E)  a firm loses in sales per day when an inventory item is depleted.F) B) and D)
G) A) and B)

Question 17

Which one of the following items is most likely a derived-demand inventory item?

Accepted Answer

A)  cereal ready to be bagged and shipped to stores
B)  tires held in inventory by an auto maker
C)  shoes on display in a retail store
D)  toys ready to be shipped to toy stores
E)  wheat harvested by a farmerF) D) and E)
G) A) and E)

Question 18

Each year you sell 950 units of a product at a price of $899 each. The variable cost per unit is $575 and the carrying cost per unit is $16.90. You have been buying 100 units at a time. Your fixed cost of ordering is $60. What is the economic order quantity?

Accepted Answer

A)  82 units
B)  95 units
C)  105 units
D)  113 units
E)  124 unitsF) A) and B)
G) B) and E)

Question 19

Jillian was recently hired by a major retail store. Her job is to determine the probability that individual customers will fail to pay for their charge sales. Jillian's job best relates to which one of the following?

Accepted Answer

A)  terms of sale
B)  credit analysis
C)  collection policy
D)  payables policy
E)  customer serviceF) A) and D)
G) All of the above

Question 20

Your current sales consist of 27 units per month at a price of $225 a unit. You are weighing the pros and cons of switching to a net 30 credit policy from your current cash only policy. If you decide to switch your credit policy you also plan to increase the sales price to $240 a unit. If you make the switch you do not expect your total monthly sales quantity to change but you do expect a 3 percent default rate. The monthly interest rate is 1.5 percent. What is the net present value of the proposed credit policy switch?

Accepted Answer

A)  $6,727
B)  $6,893
C)  $7,206
D)  $7,965
E)  $8,481F) A) and C)
G) C) and D)

Exam 20: Credit and Inventory Management

Which do you feel is the more appropriate upper limit for the credit period that a seller offers to a buyer: the buyer's operating cycle or the buyer's inventory period?

Correct Answer
verified
The operating cycle is the sum of the in...
View Answer

Why might firms forego discounts offered by their suppliers even though it is costly to do so? What steps might a firm pursue to be able to take these discounts?

Correct Answer
verified
Firms will forego discounts when there i...
View Answer

Which one of the following inventory-related costs is considered a shortage cost?

Correct Answer
verified

Which one of the following credit instruments is commonly used in international commerce?

Correct Answer
verified

Which one of the following statements is correct if you purchase an item with credit terms of 1/5, net 15?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The EOQ model is designed to determine how much:

Correct Answer
verified

Jillian was recently hired by a major retail store. Her job is to determine the probability that individual customers will fail to pay for their charge sales. Jillian's job best relates to which one of the following?

Correct Answer
verified

Correct Answer
verified

Which of the following are frequently used as sources of information when trying to ascertain the creditworthiness of a customer? I. payment history with similar firms II. credit reports III. financial statements IV. information provided by a bank

Correct Answer
verified

The period of time that extends from the day a credit sale is made until the day the bank credits a firm's account with the payment for that sale is known as the _____ period.

Correct Answer
verified

Which one of the five Cs of credit refers to the general economic situation in the customer's line of business?

Correct Answer
verified

When evaluating the creditworthiness of a customer, the term character refers to the:

Correct Answer
verified

Which two of the following are the key considerations for a seller who is establishing the length of the credit period being offered to a customer? I. seller's operating cycle II. customer's operating cycle III. seller's inventory period IV. customer's inventory period

Correct Answer
verified

The best-selling pair of roller skates The Teen Store offers sells for $79.99 a pair. The store consistently sells 5,700 pairs of these roller skates every year. The fixed costs to order more skates is $68 and the carrying costs are $1.95 per pair. What is the economic order quantity?

Correct Answer
verified

Which two of the following are the key elements in determining whether or not a switch from a no-credit policy to a credit policy is advisable? I. variable cost per unit II. cash discount percentage III. credit price IV. default rate

Correct Answer
verified

Which one of the following items is most likely a derived-demand inventory item?

Correct Answer
verified

Each year you sell 950 units of a product at a price of $899 each. The variable cost per unit is $575 and the carrying cost per unit is $16.90. You have been buying 100 units at a time. Your fixed cost of ordering is $60. What is the economic order quantity?

Correct Answer
verified

Exam 20: Credit and Inventory Management

Which do you feel is the more appropriate upper limit for the credit period that a seller offers to a buyer: the buyer's operating cycle or the buyer's inventory period?

Correct AnswerverifiedThe operating cycle is the sum of the in...View AnswerShow Answer

Why might firms forego discounts offered by their suppliers even though it is costly to do so? What steps might a firm pursue to be able to take these discounts?

Correct AnswerverifiedFirms will forego discounts when there i...View AnswerShow Answer

Which one of the following inventory-related costs is considered a shortage cost?

Correct AnswerverifiedShow Answer

Which one of the following credit instruments is commonly used in international commerce?

Correct AnswerverifiedShow Answer

Which one of the following statements is correct if you purchase an item with credit terms of 1/5, net 15?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The EOQ model is designed to determine how much:

Correct AnswerverifiedShow Answer

Jillian was recently hired by a major retail store. Her job is to determine the probability that individual customers will fail to pay for their charge sales. Jillian's job best relates to which one of the following?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following are frequently used as sources of information when trying to ascertain the creditworthiness of a customer? I. payment history with similar firms II. credit reports III. financial statements IV. information provided by a bank

Correct AnswerverifiedShow Answer

The period of time that extends from the day a credit sale is made until the day the bank credits a firm's account with the payment for that sale is known as the _____ period.

Correct AnswerverifiedShow Answer

Which one of the five Cs of credit refers to the general economic situation in the customer's line of business?

Correct AnswerverifiedShow Answer

When evaluating the creditworthiness of a customer, the term character refers to the:

Correct AnswerverifiedShow Answer

Which two of the following are the key considerations for a seller who is establishing the length of the credit period being offered to a customer? I. seller's operating cycle II. customer's operating cycle III. seller's inventory period IV. customer's inventory period

Correct AnswerverifiedShow Answer

The best-selling pair of roller skates The Teen Store offers sells for $79.99 a pair. The store consistently sells 5,700 pairs of these roller skates every year. The fixed costs to order more skates is $68 and the carrying costs are $1.95 per pair. What is the economic order quantity?

Correct AnswerverifiedShow Answer

Which two of the following are the key elements in determining whether or not a switch from a no-credit policy to a credit policy is advisable? I. variable cost per unit II. cash discount percentage III. credit price IV. default rate

Correct AnswerverifiedShow Answer

Which one of the following items is most likely a derived-demand inventory item?

Correct AnswerverifiedShow Answer

Each year you sell 950 units of a product at a price of $899 each. The variable cost per unit is $575 and the carrying cost per unit is $16.90. You have been buying 100 units at a time. Your fixed cost of ordering is $60. What is the economic order quantity?

Correct AnswerverifiedShow Answer

Correct Answer
verified
The operating cycle is the sum of the in...
View Answer

Correct Answer
verified
Firms will forego discounts when there i...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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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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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