Question 1

What is denoted in by B in the following graph?

Accepted Answer

A)   JIT point.
B)   Total opportunity cost.
C)   Total carrying costs.
D)   Total credit costs.
E)   Optimal amount of credit.F) A) and B)
G) A) and C)

Question 2

JJJ, Inc. recently extended its credit period from net 30 days to net 40 days. This represents a change in the firm's ______________.

Accepted Answer

A)   collection policy
B)   terms of sale
C)   receivables policy
D)   credit-granting policy
E)   loan policyF) A) and E)
G) C) and D)

Question 3

Which one of the following is the normal order of events when a firm is collecting an account receivable from a customer?

Accepted Answer

A)   Delinquency letter, collection agency, phone call, legal action.
B)   Legal action, delinquency letter, phone call, collection agency.
C)   Collection agency, delinquency letter, phone call, legal action.
D)   Phone call, collection agency, delinquency letter, legal action.
E)   Delinquency letter, phone call, collection agency, Legal actionF) B) and E)
G) A) and B)

Question 4

The most appropriate upper limit for the credit period is the:

Accepted Answer

A)   Length of the buyer's operating cycle.
B)   Date on which the seller must pay its supplier.
C)   Length of the seller's inventory period.
D)   Length of the buyer's inventory period.
E)   Average collection period multiplied by two.F) C) and D)
G) A) and E)

Question 5

Your firm currently has a cash sales only policy. Under this policy, you sell 340 units a month at a price of $125 a unit. Your variable cost per unit is $82 and your carrying cost per unit is $2.20. The monthly interest rate is 1.25 percent. You think that you can increase your sales to 400 units a month if you institute a net 30 credit policy. What is the net present value of the switch using the one-shot approach?

Accepted Answer

A)   $154,260
B)   $158,980
C)   $161,230
D)   $161,870
E)   $162,020F) C) and E)
G) A) and B)

Question 6

Which of the following statements is false?

Accepted Answer

A)   By extending credit, a firm typically increases its cash flow through increased gross profits.
B)   A cash discount is typically intended to be an incentive to pay early.
C)   All else the same, firms with higher markups will tend to have more flexible credit terms.
D)   Whenever credit is extended to a new customer who would not otherwise pay cash, the amount the seller has at risk is the price the customer pays.
E)   The carrying costs associated with granting credit will increase as credit policies are relaxed.F) All of the above
G) B) and E)

Question 7

A commonly used method of analyzing the creditworthiness of a potential customer is to ask your bank for assistance in acquiring credit information on the potential customer if they are a business firm.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is the best definition of credit scoring.

Accepted Answer

A)   The process of quantifying the probability of default when granting consumer credit.
B)   The length of time that credit is granted.
C)   The evidence of indebtedness.
D)   Graphical representation of the sum of the carrying costs and the opportunity costs of a credit policy.
E)   The process of determining the probability that customers will or will not pay.F) C) and D)
G) A) and B)

Question 9

Newell and Company is a manufacturing concern. The company divides its raw materials inventory into four classifications based upon the cost of each item. Based upon this system, Newell will:

Accepted Answer

A)   Compute the EOQ for each group of items.
B)   Incur more shortage costs on the less expensive items.
C)   Order the more expensive items more frequently than the less expensive items.
D)   Maintain a larger safety stock on the more expensive items.
E)   Apply the JIT inventory approach to the less expensive items.F) A) and B)
G) D) and E)

Question 10

Assume the customer will either pay in 30 days or will default.
What is the NPV of switching the credit policy?

Accepted Answer

A)   -$5,760
B)   -$2,760
C)   $2,760
D)   $3,000
E)   $5,760F) D) and E)
G) A) and B)

Question 11

The optimal credit policy:

Accepted Answer

A)   Is the one which minimizes the accounts receivable period.
B)   Is an all-cash policy.
C)   Is difficult to precisely determine.
D)   Ignores opportunity costs.
E)   Minimizes the carrying costs.F) C) and E)
G) A) and C)

Question 12

Listed in the text are seven factors that most influence the credit period. List and briefly explain five of these and give an example of a product that fits each factor.

Accepted Answer

This requires only a minor amount of cre...

Question 13

The following sequence of events occurs:  How long is the accounts receivable period?

Accepted Answer

A)   14 days
B)   15 days
C)   17 days
D)   18 days
E)   20 daysF) None of the above
G) A) and E)

Question 14

When a bank guarantees the payment of a commercial draft, the instrument is called a(n) :

Accepted Answer

A)   Banker's acceptance.
B)   Trade acceptance.
C)   Open account.
D)   Sight draft.
E)   Time draft.F) A) and D)
G) B) and D)

Question 15

Which one of the following occurs during the accounts receivable period but NOT during the cash collection period?

Accepted Answer

A)   The time it takes for a customer's cheque to move through the mail.
B)   The time between the occurrence of a sale and the mailing of the payment by the customer.
C)   The time it takes for a bank deposit to be added to the firm's available balance.
D)   The time it takes for a firm to analyze a new customer to determine if credit will be granted.
E)   The time needed for a firm to deposit a customer's cheque.F) None of the above
G) C) and D)

Question 16

A board game sells for $29.99. Leo's Games consistently sells 3,500 units of this game year after year. The fixed cost to place an order is $52 and the carrying cost per game is $.80. What is the economic order quantity?

Accepted Answer

A)   477 units
B)   603 units
C)   675 units
D)   807 units
E)   864 unitsF) None of the above
G) C) and D)

Question 17

It would be common for a firm which has adhered to a cash sales policy to experience an increase in accounts payable immediately following the time the firm converts to a credit policy.

Accepted Answer

A) True 
 B)False

Question 18

Karloff Medical Supply maintains an average inventory of 2,000 human skulls for sale to medical schools and filmmakers. The carrying cost per skull per year is estimated to be $5. Boris places an order for 10,000 skulls on the first of each month and the order cost is $75. What are the total carrying costs under the current system?

Accepted Answer

A)   $1,250
B)   $2,500
C)   $5,000
D)   $10,000
E)   $25,000F) A) and B)
G) None of the above

Question 19

Consider a roll of sheet steel. This represents ________ inventory to a farm-machinery manufacturer and ________ inventory in a steel mill.

Accepted Answer

A)   Raw materials; work-in-progress.
B)   Finished goods; work-in-progress.
C)   Work-in-progress; raw materials.
D)   Finished goods; raw materials.
E)   Raw materials; finished goods.F) A) and D)
G) A) and E)

Question 20

Today, July 8, you bought $26,400 worth of merchandise from your supplier. The credit terms are 2/5, net 15. By what day do you have to make your payment to receive the discount?

Accepted Answer

A)   July 10
B)   July 11
C)   July 13
D)   July 18
E)   July 23F) B) and C)
G) A) and B)

Exam 20: Credit and Inventory Management

Which of the following statements is false?

Correct Answer
verified

Correct Answer
verified

Assume the customer will either pay in 30 days or will default. What is the NPV of switching the credit policy?

Correct Answer
verified

What is denoted in by B in the following graph?

Correct Answer
verified

Newell and Company is a manufacturing concern. The company divides its raw materials inventory into four classifications based upon the cost of each item. Based upon this system, Newell will:

Correct Answer
verified

Consider a roll of sheet steel. This represents inventory to a farm-machinery manufacturer and inventory in a steel mill.

Correct Answer
verified

Correct Answer
verified

The following sequence of events occurs: How long is the accounts receivable period?

Correct Answer
verified

The optimal credit policy:

Correct Answer
verified

A commonly used method of analyzing the creditworthiness of a potential customer is to ask your bank for assistance in acquiring credit information on the potential customer if they are a business firm.

Correct Answer
verified

Listed in the text are seven factors that most influence the credit period. List and briefly explain five of these and give an example of a product that fits each factor.

Correct Answer
verified
This requires only a minor amount of cre...
View Answer

Today, July 8, you bought $26,400 worth of merchandise from your supplier. The credit terms are 2/5, net 15. By what day do you have to make your payment to receive the discount?

Correct Answer
verified

Which one of the following occurs during the accounts receivable period but NOT during the cash collection period?

Correct Answer
verified

Which of the following is the best definition of credit scoring.

Correct Answer
verified

A board game sells for $29.99. Leo's Games consistently sells 3,500 units of this game year after year. The fixed cost to place an order is $52 and the carrying cost per game is $.80. What is the economic order quantity?

Correct Answer
verified

Which one of the following is the normal order of events when a firm is collecting an account receivable from a customer?

Correct Answer
verified

When a bank guarantees the payment of a commercial draft, the instrument is called a(n) :

Correct Answer
verified

The most appropriate upper limit for the credit period is the:

Correct Answer
verified

JJJ, Inc. recently extended its credit period from net 30 days to net 40 days. This represents a change in the firm's ______________.

Correct Answer
verified

It would be common for a firm which has adhered to a cash sales policy to experience an increase in accounts payable immediately following the time the firm converts to a credit policy.

Correct Answer
verified

Exam 20: Credit and Inventory Management

Which of the following statements is false?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Assume the customer will either pay in 30 days or will default. What is the NPV of switching the credit policy?

Correct AnswerverifiedShow Answer

What is denoted in by B in the following graph?

Correct AnswerverifiedShow Answer

Newell and Company is a manufacturing concern. The company divides its raw materials inventory into four classifications based upon the cost of each item. Based upon this system, Newell will:

Correct AnswerverifiedShow Answer

Consider a roll of sheet steel. This represents ________ inventory to a farm-machinery manufacturer and ________ inventory in a steel mill.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The following sequence of events occurs: How long is the accounts receivable period?

Correct AnswerverifiedShow Answer

The optimal credit policy:

Correct AnswerverifiedShow Answer

A commonly used method of analyzing the creditworthiness of a potential customer is to ask your bank for assistance in acquiring credit information on the potential customer if they are a business firm.

Correct AnswerverifiedShow Answer

Listed in the text are seven factors that most influence the credit period. List and briefly explain five of these and give an example of a product that fits each factor.

Correct AnswerverifiedThis requires only a minor amount of cre...View AnswerShow Answer

Today, July 8, you bought $26,400 worth of merchandise from your supplier. The credit terms are 2/5, net 15. By what day do you have to make your payment to receive the discount?

Correct AnswerverifiedShow Answer

Which one of the following occurs during the accounts receivable period but NOT during the cash collection period?

Correct AnswerverifiedShow Answer

Which of the following is the best definition of credit scoring.

Correct AnswerverifiedShow Answer

A board game sells for $29.99. Leo's Games consistently sells 3,500 units of this game year after year. The fixed cost to place an order is $52 and the carrying cost per game is $.80. What is the economic order quantity?

Correct AnswerverifiedShow Answer

Which one of the following is the normal order of events when a firm is collecting an account receivable from a customer?

Correct AnswerverifiedShow Answer

When a bank guarantees the payment of a commercial draft, the instrument is called a(n) :

Correct AnswerverifiedShow Answer

The most appropriate upper limit for the credit period is the:

Correct AnswerverifiedShow Answer

JJJ, Inc. recently extended its credit period from net 30 days to net 40 days. This represents a change in the firm's ______________.

Correct AnswerverifiedShow Answer

It would be common for a firm which has adhered to a cash sales policy to experience an increase in accounts payable immediately following the time the firm converts to a credit policy.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Consider a roll of sheet steel. This represents inventory to a farm-machinery manufacturer and inventory in a steel mill.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
This requires only a minor amount of cre...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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