Question 1

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

Question 2

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

Question 3

Phil's Print Shop grants its customers the right to pay for their print jobs within 30 days of the date of service.This 30-day period is referred to as the:

Accepted Answer

A)  payables period.
B)  cash cycle.
C)  transactions period.
D)  credit period.
E)  disbursement period.F) A) and D)
G) All of the above

Question 4

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 E)
G) B) and D)

Question 5

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 6

You are trying to attract new customers that you feel could become repeat customers.The average price of your product is $619 per unit with a $435 variable cost per unit.The monthly interest rate is 1.8 percent.Your experience tells you that 9 percent of these customers will never pay their bill.Should you offer credit terms of net 30 to attract these potential customers? Why or why not?

Accepted Answer

A)  yes; because the NPV of extending credit is $8,867
B)  yes; because the NPV of extending credit is $9,787
C)  yes; because the NPV of extending credit is $128
D)  no; because the NPV of extending credit is -$459
E)  It doesn't matter because the NPV of extending credit is zero.F) B) and D)
G) B) and E)

Question 7

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

Accepted Answer

A)  a custom made set of kitchen cabinets
B)  metal cabinets for dishwashers
C)  wheat stored in a grain silo
D)  a customized drilling press
E)  a partially built modular homeF) C) and D)
G) A) and D) C

Question 8

What is the primary purpose of credit analysis?

Accepted Answer

A)  determine the optimal credit period
B)  establish the effectiveness of granting a cash discount
C)  determine the optimal discount period, if any
D)  access the frequency and amount of sales by customer
E)  evaluate whether or not a customer will payF) A) and D)
G) None of the above

Question 9

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

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 $18,and the fixed order cost is $300.What is the EOQ?

Accepted Answer

A)  1,279.84
B)  1,809.97
C)  1,907.88
D)  2,278.42
E)  2,698.15F) A) and B)
G) A) and E) C

Question 11

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 B)
G) All of the above

Question 12

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) All of the above

Question 13

Roger's Home Appliances offers credit to customers it deems worthy of this privilege.To determine if a customer is worthy,the firm computes a numerical value which is used to estimate the probability that the customer will default if credit is granted to them.The process of computing this numerical value is referred to as:

Accepted Answer

A)  credit scoring.
B)  credit capacity.
C)  receipts assessment.
D)  conditions for credit.
E)  consumer analysis.F) A) and C)
G) A) and E)

Question 14

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

Question 15

The basic factors to be evaluated in the credit evaluation process,the five Cs of credit,are:

Accepted Answer

A)  conditions, control, cessation, capital, and capacity.
B)  conditions, character, capital, control, and capacity.
C)  capital, collateral, control, character, and capacity.
D)  character, capacity, control, cessation, and collateral.
E)  character, capacity, capital, collateral, and conditions.F) A) and B)
G) A) and C)

Question 16

Which one of the following time periods is included in the accounts receivable period but not in the cash collection period?

Accepted Answer

A)  the period of time between the receipt of a check and the availability of those funds
B)  time it takes a firm to process incoming receipts
C)  period of time a check is in the mail
D)  the amount of time that it takes a bank to credit a firm's account for a deposit made
E)  period of time it takes an invoice to reach a customer by mailF) B) and E)
G) B) and D)

Question 17

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 B)
G) A) and C)

Question 18

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

Question 19

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 D)
G) A) and E)

Question 20

Under your current cash sales only policy you sell 132 units a month for a total sales value of $9,900.Your variable cost per unit is $44 and your monthly interest rate is 1 percent.Based on a recent survey,you believe that you can sell an additional 25 units per month if you offer a net 30 credit policy.What is the net present value of the proposed switch using the accounts receivable approach?

Accepted Answer

A)  $65,976
B)  $66,500
C)  $69,081
D)  $70,224
E)  $73,566F) A) and B)
G) All of the above

Exam 20: Credit and Inventory Management

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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Phil's Print Shop grants its customers the right to pay for their print jobs within 30 days of the date of service.This 30-day period is referred to as the:

Correct Answer
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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
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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
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Correct Answer
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Which one of the following inventory items is probably the most liquid?

Correct Answer
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C

What is the primary purpose of credit analysis?

Correct Answer
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When credit policy is at the optimal point,the:

Correct Answer
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D

Cohen Industrial Products uses 2,100 switch assemblies per week and then reorders another 2,100.The relevant carrying cost per switch assembly is $18,and the fixed order cost is $300.What is the EOQ?

Correct Answer
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C

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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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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The basic factors to be evaluated in the credit evaluation process,the five Cs of credit,are:

Correct Answer
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Which one of the following time periods is included in the accounts receivable period but not in the cash collection period?

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

Correct Answer
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Which one of the following statements is correct?

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Exam 20: Credit and Inventory Management

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 AnswerverifiedShow Answer

Phil's Print Shop grants its customers the right to pay for their print jobs within 30 days of the date of service.This 30-day period is referred to as the:

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

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedC

What is the primary purpose of credit analysis?

Correct AnswerverifiedShow Answer

When credit policy is at the optimal point,the:

Correct AnswerverifiedD

Cohen Industrial Products uses 2,100 switch assemblies per week and then reorders another 2,100.The relevant carrying cost per switch assembly is $18,and the fixed order cost is $300.What is the EOQ?

Correct AnswerverifiedC

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 AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

The basic factors to be evaluated in the credit evaluation process,the five Cs of credit,are:

Correct AnswerverifiedShow Answer

Which one of the following time periods is included in the accounts receivable period but not in the cash collection period?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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C

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D

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C

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