Question 1

Currently, your firm sells 280 units a month at a price of $125 a unit. You think you can increase your sales by an additional 70 units if you switch to a net 30 credit policy. The monthly interest rate is.5 percent and your variable cost per unit is $80. What is the incremental cash inflow of the proposed credit policy switch?

Accepted Answer

A)   $3,078
B)   $3,150
C)   $3,334
D)   $3,450
E)   $3,610F) A) and B)
G) B) and D)

Question 2

Provide a definition for credit instrument captive finance company.

Accepted Answer

Wholly owned subsidiary that h...

Question 3

Provide a definition for credit cost curve.

Accepted Answer

Graphical representation of th...

Question 4

Under your current cash sales only policy you sell 170 units a month at a price of $25. Your variable cost per unit is $18 and your monthly interest rate is 2 percent. Based on a recent survey, you believe that you can sell an additional 40 units per month if you offer a net 30 credit policy. What is the net present value of the switch using the one-shot approach?

Accepted Answer

A)   $5,044
B)   $6,970
C)   $7,584
D)   $8,853
E)   $9,030F) B) and E)
G) B) and C)

Question 5

A conditional sales contract passes title to the goods sold to the buyer at the time the contract is signed.

Accepted Answer

A) True 
 B)False

Question 6

The terms of sale establish how the firm proposes to purchase its goods or services.

Accepted Answer

A) True 
 B)False

Question 7

A local food wholesaler has an average collection period of 15 days and considers each month to have a total of 30 days. On a typical day, the wholesaler sells $24,500 of goods on credit and another $6,800 of goods for cash. What is the expected balance in accounts receivable?

Accepted Answer

A)   $360,700
B)   $367,500
C)   $374,300
D)   $735,000
E)   $741,800F) C) and D)
G) All of the above

Question 8

An auto windshield is classified as _____ for the glass manufacturer and as _____ when installed in an auto while it is on the production line.

Accepted Answer

A)   Raw material; work-in-progress.
B)   Raw material; a finished good.
C)   Work-in-progress; work-in-progress.
D)   Work-in-progress; finished good.
E)   A finished good; work-in-progress.F) A) and E)
G) A) and B)

Question 9

Which one of the following statements is correct if you purchase an item with credit terms of 2/5, net 15?

Accepted Answer

A)   If you pay within two days, you will receive a 5 percent discount.
B)   If you pay within 2 to 5 days, you will receive a 15 percent discount.
C)   If you do not pay within 5 days, you will be charged interest at a 15 percent annual rate.
D)   If you pay within 5 days, you will receive a 2 percent discount.
E)   You must pay the discounted amount within 15 days.F) A) and D)
G) All of the above

Question 10

A discount on the purchase price given to buyers as an inducement for prompt payment is called a(n)  _______________.

Accepted Answer

A)   Cash discount.
B)   Purchases discount.
C)   Original issue discount.
D)   Open market discount.
E)   Receivables discount.F) C) and D)
G) A) and C)

Question 11

The ________ establishes the credit period, the cash discount amount, and the discount period.

Accepted Answer

A)   Terms of sale.
B)   Collection policy.
C)   Credit analysis report.
D)   Invoice.
E)   Credit report.F) D) and E)
G) None of the above

Question 12

Which of the following statements is false regarding trade credit?

Accepted Answer

A)   Trade credit is created when a firm uses cash to make purchases from another firm.
B)   Trade credit is not usually an interest-bearing asset for the firm granting the credit.
C)   Trade credit possesses a degree of default risk.
D)   Collection of trade receivables can be sped up by offering discounts.
E)   Trade credit is an important source of external financing for Canada firms.F) A) and B)
G) B) and C)

Question 13

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

Question 14

The just-in-time inventory method is frequently employed by manufacturing firms. Explain how this system operates and discuss some of the advantages and disadvantages of the method.

Accepted Answer

The basis of the just-in-time system is ...

Question 15

One effect of granting credit to customers is that a firm's cash cycle generally increases if credit is granted, all else equal.

Accepted Answer

A) True 
 B)False

Question 16

Which one of the following statements correctly describes a credit instrument?

Accepted Answer

A)   All credit sales of a commercial nature are accompanied by a promissory note.
B)   A time draft requires payment at the time the goods are delivered.
C)   A commercial draft is signed once the goods are received in good shape by the buyer.
D)   A banker's acceptance is a sight draft for which payment has been guaranteed in the future by a bank.
E)   Under a conditional sales contract, the seller retains legal possession of the good sold until the sales invoice has been paid in full.F) A) and E)
G) A) and B)

Question 17

You are considering switching from an all cash credit policy to a net 30 credit policy. You do not expect the switch to affect either your sales quantity or your sales price. Ignoring interest and assuming that every month has 30 days, your net present value of the switch will be equal to:

Accepted Answer

A)   Zero.
B)   Your selling price per unit.
C)   Your selling price per unit multiplied by -1.
D)   Your selling price per unit multiplied by -30.
E)   Your total monthly sales multiplied by -1.F) A) and C)
G) A) and B)

Question 18

A customer purchases $500 of goods and receives credit terms of 2/10, net 20. The credit terms are defined as:

Accepted Answer

A)   Ten percent discount if paid in two days, otherwise payable in full after a total of thirty days.
B)   Two percent discount if paid in ten days, otherwise payable in full after a total of thirty days.
C)   Two percent penalty imposed if paid more than ten days after the due date, which is twenty days from date of sale.
D)   Two percent discount if paid in ten days, otherwise payable in full in twenty days.
E)   Two percent discount on ten percent of the sale if the bill is paid in twenty days.F) A) and B)
G) C) and D)

Question 19

The point at which the incremental cost of investing in accounts receivables is just offset by the cash inflows created by the incremental sales is the point at which the firm has achieved the optimal:

Accepted Answer

A)   Selling price per unit.
B)   Allocation of fixed costs.
C)   Net profit per unit.
D)   Level of inventory.
E)   Credit policy.F) D) and E)
G) A) and B)

Question 20

The model that attempts to determine the optimal order size when restocking inventory is called the:

Accepted Answer

A)   MRP model.
B)   ABC approach.
C)   JIT system.
D)   EOQ model.
E)   Safety stock model.F) B) and E)
G) A) and C)

Exam 20: Credit and Inventory Management

Correct Answer
verified

Provide a definition for credit instrument captive finance company.

Correct Answer
verified
Wholly owned subsidiary that h...
View Answer

The terms of sale establish how the firm proposes to purchase its goods or services.

Correct Answer
verified

Provide a definition for credit cost curve.

Correct Answer
verified
Graphical representation of th...
View Answer

An auto windshield is classified as _ for the glass manufacturer and as _ when installed in an auto while it is on the production line.

Correct Answer
verified

A conditional sales contract passes title to the goods sold to the buyer at the time the contract is signed.

Correct Answer
verified

Correct Answer
verified

A customer purchases $500 of goods and receives credit terms of 2/10, net 20. The credit terms are defined as:

Correct Answer
verified

You are considering switching from an all cash credit policy to a net 30 credit policy. You do not expect the switch to affect either your sales quantity or your sales price. Ignoring interest and assuming that every month has 30 days, your net present value of the switch will be equal to:

Correct Answer
verified

A local food wholesaler has an average collection period of 15 days and considers each month to have a total of 30 days. On a typical day, the wholesaler sells $24,500 of goods on credit and another $6,800 of goods for cash. What is the expected balance in accounts receivable?

Correct Answer
verified

The ________ establishes the credit period, the cash discount amount, and the discount period.

Correct Answer
verified

Which of the following statements is false regarding trade credit?

Correct Answer
verified

When credit policy is at the optimal point, the:

Correct Answer
verified

One effect of granting credit to customers is that a firm's cash cycle generally increases if credit is granted, all else equal.

Correct Answer
verified

A discount on the purchase price given to buyers as an inducement for prompt payment is called a(n) _______________.

Correct Answer
verified

The point at which the incremental cost of investing in accounts receivables is just offset by the cash inflows created by the incremental sales is the point at which the firm has achieved the optimal:

Correct Answer
verified

Which one of the following statements is correct if you purchase an item with credit terms of 2/5, net 15?

Correct Answer
verified

The model that attempts to determine the optimal order size when restocking inventory is called the:

Correct Answer
verified

The just-in-time inventory method is frequently employed by manufacturing firms. Explain how this system operates and discuss some of the advantages and disadvantages of the method.

Correct Answer
verified
The basis of the just-in-time system is ...
View Answer

Which one of the following statements correctly describes a credit instrument?

Correct Answer
verified

Exam 20: Credit and Inventory Management

Correct AnswerverifiedShow Answer

Provide a definition for credit instrument captive finance company.

Correct AnswerverifiedWholly owned subsidiary that h...View AnswerShow Answer

The terms of sale establish how the firm proposes to purchase its goods or services.

Correct AnswerverifiedShow Answer

Provide a definition for credit cost curve.

Correct AnswerverifiedGraphical representation of th...View AnswerShow Answer

An auto windshield is classified as _____ for the glass manufacturer and as _____ when installed in an auto while it is on the production line.

Correct AnswerverifiedShow Answer

A conditional sales contract passes title to the goods sold to the buyer at the time the contract is signed.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A customer purchases $500 of goods and receives credit terms of 2/10, net 20. The credit terms are defined as:

Correct AnswerverifiedShow Answer

You are considering switching from an all cash credit policy to a net 30 credit policy. You do not expect the switch to affect either your sales quantity or your sales price. Ignoring interest and assuming that every month has 30 days, your net present value of the switch will be equal to:

Correct AnswerverifiedShow Answer

A local food wholesaler has an average collection period of 15 days and considers each month to have a total of 30 days. On a typical day, the wholesaler sells $24,500 of goods on credit and another $6,800 of goods for cash. What is the expected balance in accounts receivable?

Correct AnswerverifiedShow Answer

The ________ establishes the credit period, the cash discount amount, and the discount period.

Correct AnswerverifiedShow Answer

Which of the following statements is false regarding trade credit?

Correct AnswerverifiedShow Answer

When credit policy is at the optimal point, the:

Correct AnswerverifiedShow Answer

One effect of granting credit to customers is that a firm's cash cycle generally increases if credit is granted, all else equal.

Correct AnswerverifiedShow Answer

A discount on the purchase price given to buyers as an inducement for prompt payment is called a(n) _______________.

Correct AnswerverifiedShow Answer

The point at which the incremental cost of investing in accounts receivables is just offset by the cash inflows created by the incremental sales is the point at which the firm has achieved the optimal:

Correct AnswerverifiedShow Answer

Which one of the following statements is correct if you purchase an item with credit terms of 2/5, net 15?

Correct AnswerverifiedShow Answer

The model that attempts to determine the optimal order size when restocking inventory is called the:

Correct AnswerverifiedShow Answer

The just-in-time inventory method is frequently employed by manufacturing firms. Explain how this system operates and discuss some of the advantages and disadvantages of the method.

Correct AnswerverifiedThe basis of the just-in-time system is ...View AnswerShow Answer

Which one of the following statements correctly describes a credit instrument?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
Wholly owned subsidiary that h...
View Answer

Correct Answer
verified

Correct Answer
verified
Graphical representation of th...
View Answer

An auto windshield is classified as _ for the glass manufacturer and as _ when installed in an auto while it is on the production line.

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
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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The basis of the just-in-time system is ...
View Answer

Correct Answer
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