Question 1

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) A) and C)
G) D) and E)

Question 2

Which one of the following factors tends to favor longer credit periods?

Accepted Answer

A)  high consumer demand
B)  lower priced merchandise
C)  increased credit risk
D)  merchandise with low collateral value
E)  increased competitionF) A) and E)
G) D) and E)

Question 3

You are currently selling 72 units a month at a price of $210 a unit.Your variable cost of each unit is $130.If you switch from your current cash sales only policy to a net 30 policy you think your sales will increase to a total of 95 units per month.The monthly interest rate is 1.5 percent.What is the net present value of this proposed switch using the accounts receivable approach?

Accepted Answer

A)  $104,557
B)  $114,829
C)  $134,822
D)  $136,516
E)  $141,520F) C) and D)
G) None of the above

Question 4

The Winter Store just purchased $48,300 of goods from its supplier with credit terms of 2/10,net 25.What is the discounted price?

Accepted Answer

A)  $43,470
B)  $46,209
C)  $47,334
D)  $47,929
E)  $48,300F) A) and B)
G) A) and C)

Question 5

Currently,The Toy Box sells 465 units a month at an average price of $42 a unit.The company thinks it can increase sales by an additional 130 units a month if it switches to a net 30 credit policy.The monthly interest rate is 0.4 percent and the variable cost per unit is $21.What is the incremental cash inflow of the proposed credit policy switch?

Accepted Answer

A)  $2,120
B)  $2,730
C)  $2,760
D)  $2,810
E)  $5,070F) A) and B)
G) B) and E) B

Question 6

Which one of the following will increase a firm's investment in accounts receivables?

Accepted Answer

A)  a decrease in the number of days for which credit is granted
B)  a decrease in credit sales
C)  an increase in cash sales
D)  a decrease in the average collection period
E)  an increase in average daily credit salesF) B) and C)
G) None of the above

Question 7

Inventory needs under a derived-demand inventory system are:

Accepted Answer

A)  primarily dependent upon the competitive demands placed on a firm's suppliers.
B)  based on the anticipated demand for the finished product.
C)  based on minimizing the cost of restocking inventory.
D)  held constant over time.
E)  determined by a kanban system.F) A) and D)
G) All of the above

Question 8

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 9

Roger's Store begins each week with 150 phasers in stock.This stock is depleted each week and reordered.The carrying cost per phaser is $48 per year and the fixed order cost is $70.What is the optimal number of orders that should be placed each year?

Accepted Answer

A)  48.69
B)  51.71
C)  54.20
D)  61.10
E)  64.50F) A) and B)
G) C) and D)

Question 10

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) B) and D)
G) B) and C) B

Question 11

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 E)
G) C) and D)

Question 12

A 2/10,net 30 credit policy:

Accepted Answer

A)  is an expensive form of short-term credit if a buyer foregoes the discount.
B)  provides cheap financing to the buyer for 30 days.
C)  is an inexpensive means of reducing the seller's collection period if every customer takes the discount.
D)  tends to have little effect on the seller's collection period.
E)  tends to increase a firm's investment in receivables as compared to a straight net 30 policy.F) A) and C)
G) B) and E)

Question 13

Assume that RSF is a wholly-owned subsidiary of the Rolled Steel Company.RSF provides credit financing solely for large ticket items purchased from the Rolled Steel Company.Which one of the following terms describes RSF?

Accepted Answer

A)  credit department
B)  parent company
C)  captive finance company
D)  credit union
E)  service unitF) C) and D)
G) A) and B)

Question 14

The ABC approach to inventory management is based on the concept that:

Accepted Answer

A)  inventory should arrive just in time to be used.
B)  the inventory period should be constant for all inventory items.
C)  basic inventory items that are essential to production and also inexpensive should be ordered in small quantities only.
D)  a small percentage of the inventory items probably represents a large percentage of the inventory cost.
E)  one-third of a year's inventory need should be on hand, another third should be on order, and the last third should not be ordered yet.F) B) and C)
G) A) and E)

Question 15

If you extend credit for a one-time sale to a new customer you risk an amount equal to:

Accepted Answer

A)  the sales price of the item sold.
B)  the variable cost of the item sold.
C)  the fixed cost of the item sold.
D)  the profit margin on the item sold.
E)  zero.F) B) and C)
G) A) and D)

Question 16

Your current sales consist of 45 units per month at a price of $390 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 $410 a unit.The monthly interest rate is 1.4 percent.What is the break-even default rate of the proposed switch?

Accepted Answer

A)  3.55 percent
B)  3.68 percent
C)  4.29 percent
D)  4.71 percent
E)  4.88 percentF) D) and E)
G) A) and B)

Question 17

Which one of the following statements is correct?

Accepted Answer

A)  If the majority of a firm's new customers become repeat customers then there is a strong argument against extending credit even if the default rate is low.
B)  A customer's past payment history reveals little information in relation to his or her future tendency to pay.
C)  A suggested policy for offering credit to new customers is to limit the amount of their initial credit purchase.
D)  The risk of issuing credit is the same for a new customer as it is for an existing customer.
E)  The recommended credit policy for new customers is to extend the maximum amount of credit you will ever be willing to offer as an enticement to get their business.F) A) and E)
G) A) and D)

Question 18

A firm offers terms of 2/9,net 41.What effective annual interest rate does the firm earn when a customer does not take the discount?

Accepted Answer

A)  18.67 percent
B)  20.45 percent
C)  23.37 percent
D)  25.34 percent
E)  25.92 percentF) A) and D)
G) A) and C) E

Question 19

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) C) and D)
G) All of the above

Question 20

Which one of the five Cs of credit refers to a firm's financial reserves?

Accepted Answer

A)  character
B)  capacity
C)  collateral
D)  conditions
E)  capitalF) A) and B)
G) A) and E)

Exam 20: Credit and Inventory Management

Which one of the following statements is correct?

Correct Answer
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Which one of the following factors tends to favor longer credit periods?

Correct Answer
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Correct Answer
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The Winter Store just purchased $48,300 of goods from its supplier with credit terms of 2/10,net 25.What is the discounted price?

Correct Answer
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Correct Answer
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B

Which one of the following will increase a firm's investment in accounts receivables?

Correct Answer
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Inventory needs under a derived-demand inventory system are:

Correct Answer
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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

Roger's Store begins each week with 150 phasers in stock.This stock is depleted each week and reordered.The carrying cost per phaser is $48 per year and the fixed order cost is $70.What is the optimal number of orders that should be placed each year?

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
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B

The EOQ model is designed to determine how much:

Correct Answer
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A 2/10,net 30 credit policy:

Correct Answer
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Assume that RSF is a wholly-owned subsidiary of the Rolled Steel Company.RSF provides credit financing solely for large ticket items purchased from the Rolled Steel Company.Which one of the following terms describes RSF?

Correct Answer
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The ABC approach to inventory management is based on the concept that:

Correct Answer
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If you extend credit for a one-time sale to a new customer you risk an amount equal to:

Correct Answer
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Correct Answer
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Which one of the following statements is correct?

Correct Answer
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A firm offers terms of 2/9,net 41.What effective annual interest rate does the firm earn when a customer does not take the discount?

Correct Answer
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E

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

Which one of the five Cs of credit refers to a firm's financial reserves?

Correct Answer
verified

Exam 20: Credit and Inventory Management

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

Which one of the following factors tends to favor longer credit periods?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Winter Store just purchased $48,300 of goods from its supplier with credit terms of 2/10,net 25.What is the discounted price?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedB

Which one of the following will increase a firm's investment in accounts receivables?

Correct AnswerverifiedShow Answer

Inventory needs under a derived-demand inventory system are:

Correct AnswerverifiedShow Answer

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

Roger's Store begins each week with 150 phasers in stock.This stock is depleted each week and reordered.The carrying cost per phaser is $48 per year and the fixed order cost is $70.What is the optimal number of orders that should be placed each year?

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 AnswerverifiedB

The EOQ model is designed to determine how much:

Correct AnswerverifiedShow Answer

A 2/10,net 30 credit policy:

Correct AnswerverifiedShow Answer

Assume that RSF is a wholly-owned subsidiary of the Rolled Steel Company.RSF provides credit financing solely for large ticket items purchased from the Rolled Steel Company.Which one of the following terms describes RSF?

Correct AnswerverifiedShow Answer

The ABC approach to inventory management is based on the concept that:

Correct AnswerverifiedShow Answer

If you extend credit for a one-time sale to a new customer you risk an amount equal to:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

A firm offers terms of 2/9,net 41.What effective annual interest rate does the firm earn when a customer does not take the discount?

Correct AnswerverifiedE

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

Which one of the five Cs of credit refers to a firm's financial reserves?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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B

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

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B

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E

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Correct Answer
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