Question 1

Which one of the following items is most likely a derived-demand inventory item?

Accepted Answer

A)   Dog food ready to be bagged and sold.
B)   Clothes on a rack in a retail store.
C)   Cars sitting in a lot ready to be shipped by the auto manufacturer to auto dealers.
D)   Auto glass held in inventory by an auto manufacturer.
E)   Corn harvested by a corn farmer.F) A) and B)
G) B) and E)

Question 2

The monetary incentive given to encourage prompt payment is called the:

Accepted Answer

A)   Invoice amount.
B)   Credit amount.
C)   Sale term.
D)   Receivables credit.
E)   Cash discount.F) A) and D)
G) A) and C)

Question 3

Law'N'Order Industries recently changed the terms it offers its customers from 2/10 net 30 to 3/20 net 40. By its action, the ﬁrm has ______________.

Accepted Answer

A)   Shortened its customers' cash cycle.
B)   Lengthened its customers' receivables period.
C)   Lengthened its customers' cash cycle.
D)   Shortened its customers' payables period.
E)   Shortened its customers' credit period.F) All of the above
G) A) and B)

Question 4

Which of the following is the best deﬁnition of a credit cost curve.

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) A) and B)
G) A) and C)

Question 5

How might the U.S. "war on terrorism" affect the level of safety stock a Canadian ﬁrm maintains?

Accepted Answer

Student answers will vary. The increased...

Question 6

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

Accepted Answer

A)   $4,320
B)   $5,000
C)   $5,333
D)   $5,760
E)   $6,000F) C) and D)
G) B) and E)

Question 7

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 E)

Question 8

You sell 28,000 units of an item each year. The carrying cost per unit is $.42 and the ﬁxed costs per order are $52. What is the economic order quantity?

Accepted Answer

A)   1,862 units
B)   1,907 units
C)   2,414 units
D)   2,507 units
E)   2,633 unitsF) A) and C)
G) All of the above

Question 9

A compilation of the ﬁrm's accounts receivable ordered by the length of time each account has remained unpaid is called a(n) :

Accepted Answer

A)   Credit report.
B)   Aging schedule.
C)   Risk assessment report.
D)   Turnover delineation.
E)   Cost consolidation and consistency report.F) A) and D)
G) None of the above

Question 10

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

Question 11

Green Enterprises builds custom cabinets for new homes. The demand for these cabinets is an
independent demand.

Accepted Answer

A) True 
 B)False

Question 12

Balboa Enterprises currently sells 13,650 units a month for total monthly sales of $272,863.50. The company is considering replacing its current cash only credit policy with a net 30 policy. The
Variable cost per unit is $11.30 and the monthly interest rate is 1 percent. What is the switch break-
Even level of sales?

Accepted Answer

A)   13,492 units
B)   13,525 units
C)   13,600 units
D)   13,968 units
E)   14,069 unitsF) A) and E)
G) B) and C)

Question 13

Green Enterprises builds custom cabinets for new homes. The demand for these cabinets is
contingent upon the sale of new homes.

Accepted Answer

A) True 
 B)False

Question 14

The percentage cost of credit varies with length of the credit period.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

Under your current cash sales only policy you sell 140 units a month for a total sales value of $9,660. Your variable cost per unit is $48 and your monthly interest rate is 1.3 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)   $28,417
B)   $28,607
C)   $29,525
D)   $30,008
E)   $30,462F) None of the above
G) A) and D)

Question 17

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

Question 18

One effect of granting credit to customers is that both the cost of default and the cost of discounts
must be considered before granting credit.

Accepted Answer

A) True 
 B)False

Question 19

Lemius Industries is considering a net 30-day credit policy, which it believes will increase sales by 25%. Currently Lemius sells 800 units a month at a retail price of $45 a unit and a variable cost of
$32 each. Lemius has a required monthly rate of return of 1.75%. What is the net present value of
This possible switch in credit policies?

Accepted Answer

A)   $99,839
B)   $103,897
C)   $106,171
D)   $118,971
E)   $120,008F) A) and B)
G) D) and E)

Question 20

Cindy's Toys has an average inventory of 1,800 teething rings. The carrying cost per unit per year is 5¢. Cindy places an order for 3,600 teething rings on the first of each month and the order cost is $25. What is the average inventory using the EOQ?

Accepted Answer

A)   2,251 units
B)   2,596 units
C)   2,746 units
D)   3,286 units
E)   3,300 unitsF) A) and B)
G) A) and C)

Exam 20: Credit and Inventory Management

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

Correct Answer
verified

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

Correct Answer
verified

Which of the following is the best deﬁnition of a credit cost curve.

Correct Answer
verified

The optimal credit policy:

Correct Answer
verified

Correct Answer
verified

How might the U.S. "war on terrorism" affect the level of safety stock a Canadian ﬁrm maintains?

Correct Answer
verified
Student answers will vary. The increased...
View Answer

Correct Answer
verified

The percentage cost of credit varies with length of the credit period.

Correct Answer
verified

Law'N'Order Industries recently changed the terms it offers its customers from 2/10 net 30 to 3/20 net 40. By its action, the ﬁrm has ______________.

Correct Answer
verified

Correct Answer
verified

Cindy's Toys has an average inventory of 1,800 teething rings. The carrying cost per unit per year is 5¢. Cindy places an order for 3,600 teething rings on the first of each month and the order cost is $25. What is the average inventory using the EOQ?

Correct Answer
verified

One effect of granting credit to customers is that both the cost of default and the cost of discounts must be considered before granting credit.

Correct Answer
verified

Correct Answer
verified

Green Enterprises builds custom cabinets for new homes. The demand for these cabinets is an independent demand.

Correct Answer
verified

Green Enterprises builds custom cabinets for new homes. The demand for these cabinets is contingent upon the sale of new homes.

Correct Answer
verified

The monetary incentive given to encourage prompt payment is called the:

Correct Answer
verified

Which one of the following items is most likely a derived-demand inventory item?

Correct Answer
verified

A compilation of the ﬁrm's accounts receivable ordered by the length of time each account has remained unpaid is called a(n) :

Correct Answer
verified

You sell 28,000 units of an item each year. The carrying cost per unit is $.42 and the ﬁxed costs per order are $52. What is the economic order quantity?

Correct Answer
verified

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

Correct Answer
verified

Exam 20: Credit and Inventory Management

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is the best deﬁnition of a credit cost curve.

Correct AnswerverifiedShow Answer

The optimal credit policy:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

How might the U.S. "war on terrorism" affect the level of safety stock a Canadian ﬁrm maintains?

Correct AnswerverifiedStudent answers will vary. The increased...View AnswerShow Answer

Correct AnswerverifiedShow Answer

The percentage cost of credit varies with length of the credit period.

Correct AnswerverifiedShow Answer

Law'N'Order Industries recently changed the terms it offers its customers from 2/10 net 30 to 3/20 net 40. By its action, the ﬁrm has ______________.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Cindy's Toys has an average inventory of 1,800 teething rings. The carrying cost per unit per year is 5¢. Cindy places an order for 3,600 teething rings on the first of each month and the order cost is $25. What is the average inventory using the EOQ?

Correct AnswerverifiedShow Answer

One effect of granting credit to customers is that both the cost of default and the cost of discounts must be considered before granting credit.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Green Enterprises builds custom cabinets for new homes. The demand for these cabinets is an independent demand.

Correct AnswerverifiedShow Answer

Green Enterprises builds custom cabinets for new homes. The demand for these cabinets is contingent upon the sale of new homes.

Correct AnswerverifiedShow Answer

The monetary incentive given to encourage prompt payment is called the:

Correct AnswerverifiedShow Answer

Which one of the following items is most likely a derived-demand inventory item?

Correct AnswerverifiedShow Answer

A compilation of the ﬁrm's accounts receivable ordered by the length of time each account has remained unpaid is called a(n) :

Correct AnswerverifiedShow Answer

You sell 28,000 units of an item each year. The carrying cost per unit is $.42 and the ﬁxed costs per order are $52. What is the economic order quantity?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
verified
Student answers will vary. The increased...
View Answer

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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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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