Question 1

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 C)
G) A) and E)

Question 2

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

Question 3

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) A) and B)
G) A) and E) D

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) C) and E)
G) B) and C)

Question 5

Music City,Inc.has an average collection period of 62 days.Its average daily investment in receivables is $50,000.What are the annual credit sales?

Accepted Answer

A)   $268,407
B)   $277,109
C)   $294,355
D)   $325,893
E)   $767,123F) A) and D)
G) A) and C)

Question 6

Weisbrough United currently has a cash sales only policy.Under this policy,the firm sells 410 units a month at a price of $219 a unit.The variable cost per unit is $140 and the carrying cost per unit is $3.30.The monthly interest rate is 1.3 percent.The firm believes it can increase its sales to 475 units a month if it institutes a net 30 credit policy.What is the net present value of the switch using the one-shot approach?

Accepted Answer

A)   $255,590
B)   $296,110
C)   $298,470
D)   $302,233
E)   $305,902F) A) and D)
G) None of the above

Question 7

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) All of the above
G) A) and B)

Question 8

Cape May Products currently sells 650 units a month at a price of $59 a unit.The firm believes it can increase its sales by an additional 125 units if it switches to a net 30 credit policy.The monthly interest rate is 0.35 percent and the variable cost per unit is $38.What is the incremental cash inflow from the proposed credit policy switch?

Accepted Answer

A)   $774
B)   $2,625
C)   $4,750
D)   $5,690
E)   $7,375F) A) and B)
G) A) and C)

Question 9

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 10

A just-in-time inventory system:
I.when implemented properly reduces the cost of inventory to zero.
II.increases the inventory turnover rate.
III.is sufficient to handle immediate production needs.
IV.minimizes the costs of holding inventory.

Accepted Answer

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

Question 11

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

Question 12

You are viewing a graph which compares costs with the amount of credit extended.Both the carrying costs and the opportunity costs of credit are depicted.What is the function called that represents the summation of these carrying and opportunity costs?

Accepted Answer

A)   opportunity cost curve
B)   credit extension curve
C)   credit cost curve
D)   terms of sale graph
E)   optimal sales graphF) None of the above
G) A) and B)

Question 13

Which one of the following inventory items is probably the least liquid?

Accepted Answer

A)   plywood held in inventory by a home builder
B)   a wheel barrow held in inventory by a garden center
C)   a partially assembled interior for a new vehicle
D)   a set of tires owned by an automobile manufacturer
E)   a toy owned by a retail toy storeF) B) and E)
G) C) and D) C

Question 14

All else equal,firms with (1)excess capacity, (2)low variable costs,and (3)repeat customers are more apt to offer liberal credit terms to their customers than are other firms.Explain why this tendency exists.

Accepted Answer

Firms with excess capacity are more apt ...

Question 15

Which one of the following statements is correct?

Accepted Answer

A)   The credit period begins when the discount period ends.
B)   The discount period is the length of time granted to a customer to pay for a purchase.
C)   The credit period begins on the invoice date.
D)   With terms of 2/10,net 30,the net credit period is 20 days.
E)   With EOM dating,all sales are assumed to have occurred on the 15th of each month.F) C) and E)
G) A) and B)

Question 16

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) A) and D)

Question 17

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) A) and E)

Question 18

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 1.5 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)   $1,733
B)   $1,867
C)   $2,617
D)   $4,817
E)   $8,867F) A) and C)
G) B) and E)

Question 19

The terms of sale generally include which of the following?
I.type of credit instrument
II.cash discount
III.credit period
IV.discount period

Accepted Answer

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

Question 20

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) B) and E)
G) C) and E) C

Exam 20: Credit and Inventory Managementpart Eight: Topics in Corporate Finance

Inventory needs under a derived-demand inventory system are:

Correct Answer
verified

A cash discount of 2/5,net 30:

Correct Answer
verified

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

Correct Answer
verified
D

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
verified

Music City,Inc.has an average collection period of 62 days.Its average daily investment in receivables is $50,000.What are the annual credit sales?

Correct Answer
verified

Correct Answer
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The EOQ model is designed to determine how much:

Correct Answer
verified

Correct Answer
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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

A just-in-time inventory system: I.when implemented properly reduces the cost of inventory to zero. II.increases the inventory turnover rate. III.is sufficient to handle immediate production needs. IV.minimizes the costs of holding inventory.

Correct Answer
verified

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

Correct Answer
verified

You are viewing a graph which compares costs with the amount of credit extended.Both the carrying costs and the opportunity costs of credit are depicted.What is the function called that represents the summation of these carrying and opportunity costs?

Correct Answer
verified

Which one of the following inventory items is probably the least liquid?

Correct Answer
verified
C

All else equal,firms with (1)excess capacity, (2)low variable costs,and (3)repeat customers are more apt to offer liberal credit terms to their customers than are other firms.Explain why this tendency exists.

Correct Answer
verified
Firms with excess capacity are more apt ...
View Answer

Which one of the following statements is correct?

Correct Answer
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Which one of the following statements is correct?

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

Correct Answer
verified

Correct Answer
verified

The terms of sale generally include which of the following? I.type of credit instrument II.cash discount III.credit period IV.discount period

Correct Answer
verified

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
verified
C

Exam 20: Credit and Inventory Managementpart Eight: Topics in Corporate Finance

Inventory needs under a derived-demand inventory system are:

Correct AnswerverifiedShow Answer

A cash discount of 2/5,net 30:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedD

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

Music City,Inc.has an average collection period of 62 days.Its average daily investment in receivables is $50,000.What are the annual credit sales?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The EOQ model is designed to determine how much:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow 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

A just-in-time inventory system: I.when implemented properly reduces the cost of inventory to zero. II.increases the inventory turnover rate. III.is sufficient to handle immediate production needs. IV.minimizes the costs of holding inventory.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

You are viewing a graph which compares costs with the amount of credit extended.Both the carrying costs and the opportunity costs of credit are depicted.What is the function called that represents the summation of these carrying and opportunity costs?

Correct AnswerverifiedShow Answer

Which one of the following inventory items is probably the least liquid?

Correct AnswerverifiedC

All else equal,firms with (1)excess capacity, (2)low variable costs,and (3)repeat customers are more apt to offer liberal credit terms to their customers than are other firms.Explain why this tendency exists.

Correct AnswerverifiedFirms with excess capacity are more apt ...View AnswerShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

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

Correct AnswerverifiedShow Answer

The terms of sale generally include which of the following? I.type of credit instrument II.cash discount III.credit period IV.discount period

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 AnswerverifiedC

Correct Answer
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D

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Correct Answer
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Firms will forego discounts when there i...
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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C

Correct Answer
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Firms with excess capacity are more apt ...
View Answer

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Correct Answer
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C