Question 1

Town Hardware sells goods on credit with payment due 30 days after purchase. If payment is not received by the 30th day, the store mails a friendly reminder to the customer. If payment is not received by the 45th day, the store calls the customer and requests payment and also stops offering credit to that customer. These procedures are referred to as the store's:

Accepted Answer

A)   customer service policy.
B)   credit policy.
C)   collection policy.
D)   payables policy.
E)   disbursements policy.F) C) and E)
G) A) and E)

Question 2

When evaluating the creditworthiness of a customer, the term capital refers to the:

Accepted Answer

A)   type of goods the customer wishes to obtain.
B)   customer's financial reserves.
C)   types of assets the customer wants to pledge as collateral.
D)   customer's willingness to pay bills in a timely fashion.
E)   nature of the customer's line of work.F) None of the above
G) All of the above

Question 3

Winters' just purchased $42,911 of goods from its supplier with credit terms of 1/5, net 25. What is the discounted price?

Accepted Answer

A)   $40,765
B)   $41,209
C)   $42,482
D)   $42,911
E)   $43,300F) B) and E)
G) A) and E) C

Question 4

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

Accepted Answer

A)   Storage costs
B)   Insurance cost
C)   Loss of customer goodwill
D)   Theft cost
E)   Opportunity cost of capital used for inventory purchasesF) C) and E)
G) C) and D)

Question 5

The EOQ model is designed to determine how much:

Accepted Answer

A)   total inventory a firm needs during any one year.
B)   total inventory costs will be for any one given year.
C)   inventory should be purchased at one time.
D)   inventory will be sold per day.
E)   a firm loses in sales per day when an inventory item is depleted.F) C) and E)
G) B) and D)

Question 6

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 D)
G) A) and B)

Question 7

Allison has developed a set of procedures for determining the amount of each raw material she needs to have in inventory if she is to keep the assembly lines operating efficiently. These procedures are commonly referred to by which one of the following terms?

Accepted Answer

A)   First-in, first-out method
B)   The Baumol model
C)   Net working capital planning
D)   Economic order procedures
E)   Materials requirements planningF) C) and E)
G) D) and E)

Question 8

The accounts receivable approach to credit policy supports the theory that:

Accepted Answer

A)   a firm's risk of offering credit to a new customer is limited to the cost of the items sold.
B)   the best credit policy is an all-cash policy.
C)   the cost of offering credit to a new customer is the same as the cost of offering credit to an existing customer.
D)   increasing receivables guarantees increasing profits.
E)   the default risk of a credit policy is the same as the default risk under an all cash-policy if your customers remain the same.F) C) and D)
G) A) and E) A

Question 9

The Dilana Corporation is considering a change in its cash-only policy. The new terms would be net one period. The required return is 1.5 percent per period. The firm has current sales of 3,500 units per month at a price of $71 per unit. The new policy is expected to increase sales to 3,550 units at a price of $71 per unit. The cost per unit is constant at $38. What is the incremental cash inflow of the new policy?

Accepted Answer

A)   $1,880
B)   $1,420
C)   $1,500
D)   $1,995
E)   $1,650F) C) and D)
G) A) and B)

Question 10

The terms of sale generally include all of the following except the:

Accepted Answer

A)   credit period.
B)   cash discount.
C)   type of credit instrument.
D)   discount period.
E)   customer's credit capacity.F) A) and E)
G) All of the above E

Question 11

Which of the following characteristics are most associated with a firm that adopts a liberal credit policy?

Accepted Answer

A)   Mostly one-time customers and excess capacity
B)   Low carrying costs and full production
C)   Low carrying costs and high variable costs
D)   Low variable costs and predominately repeat customers
E)   Excess capacity and high variable costsF) A) and B)
G) C) and E)

Question 12

Currently, Glasgow Importers sells 855 units a month at a price of $39 a unit. By switching to a net 30 credit policy, sales should increase to 950 units while the price remains constant. The monthly interest rate is .61 percent and the variable cost per unit is $8. What is the net present value of the proposed credit policy switch?

Accepted Answer

A)   $513,360
B)   $516,892
C)   $490,200
D)   $537,520
E)   $448,682F) All of the above
G) C) and D)

Question 13

Assume an average selling price of $547 per unit, a variable cost per unit of $339, a monthly interest rate of 1.1 percent, and a default rate of 3.1 percent. What is the NPV of extending credit for 30 days to all who are expected to become repeat customers?

Accepted Answer

A)   $17,984
B)   $19,787
C)   $12,304
D)   $18,662
E)   $13,609F) B) and C)
G) A) and B)

Question 14

Each year, CTM sells 450 units of a product at a price of $639 each. The variable cost per unit is $421, the carrying cost per unit is $11.78, and the fixed order cost is $56. What is the economic order quantity?

Accepted Answer

A)   65 units
B)   58 units
C)   72 units
D)   53 units
E)   84 unitsF) B) and E)
G) B) and D)

Question 15

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 E)
G) A) and C)

Question 16

Assume you are viewing a graph that 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) A) and D)
G) A) and C)

Question 17

Assume a sales price of $119 per unit, a $76 per unit variable cost, an average default rate of 3 percent, and a monthly interest rate of 1.25 percent. What is the net present value of a new repeat customer who never defaults on his or her payment?

Accepted Answer

A)   $5,733
B)   $3,364
C)   $2,617
D)   $8,817
E)   $9,520F) A) and D)
G) B) and C)

Question 18

A new customer has placed an order for a turbine engine that has a variable cost of $1.12 million per unit and a credit sales price of $1.64 million. Credit is extended for one period. Based on historical experience, payment for about 1 out of every 178 such orders is never collected. The required return is 2.1 percent per period. What is the NPV per unit if this is a one-time order?

Accepted Answer

A)   $516,407
B)   $421,819
C)   $477,244
D)   $534,290
E)   $351,056F) All of the above
G) A) and E)

Question 19

New Products currently sells a product with a variable cost per unit of $23 and a unit selling price of $49. At the present time, the firm only sells on a cash basis with monthly sales of 733 units. The monthly interest rate is .48 percent. What is the value of Q' at the switch break-even point if the firm adopted a net 30 credit policy? Assume the selling price per unit and the variable costs per unit remain constant.

Accepted Answer

A)   739.66 units
B)   736.34 units
C)   728.47 units
D)   740.29 units
E)   743.18 unitsF) A) and C)
G) A) and D)

Question 20

Quest is considering a change in its cash-only sales policy. The new terms of sale would be net one month. The required return is .98 percent per month. Currently, the firm sells 420 units per month at $736 per unit. Under the new policy, the firm expects sales of 475 units also at $736 per unit. The variable cost per unit is $426. What is the NPV of switching?

Accepted Answer

A)   $1,228,750
B)   $1,407,246
C)   $1,335,021
D)   $1,238,250
E)   $1,056,784F) D) and E)
G) A) and B)

Exam 20: Credit and Inventory Management

Correct Answer
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When evaluating the creditworthiness of a customer, the term capital refers to the:

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Winters' just purchased $42,911 of goods from its supplier with credit terms of 1/5, net 25. What is the discounted price?

Correct Answer
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C

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

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

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

Correct Answer
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Allison has developed a set of procedures for determining the amount of each raw material she needs to have in inventory if she is to keep the assembly lines operating efficiently. These procedures are commonly referred to by which one of the following terms?

Correct Answer
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The accounts receivable approach to credit policy supports the theory that:

Correct Answer
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A

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The terms of sale generally include all of the following except the:

Correct Answer
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E

Which of the following characteristics are most associated with a firm that adopts a liberal credit policy?

Correct Answer
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Assume an average selling price of $547 per unit, a variable cost per unit of $339, a monthly interest rate of 1.1 percent, and a default rate of 3.1 percent. What is the NPV of extending credit for 30 days to all who are expected to become repeat customers?

Correct Answer
verified

Each year, CTM sells 450 units of a product at a price of $639 each. The variable cost per unit is $421, the carrying cost per unit is $11.78, and the fixed order cost is $56. What is the economic order quantity?

Correct Answer
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Inventory needs under a derived-demand inventory system are:

Correct Answer
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Assume you are viewing a graph that 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

Assume a sales price of $119 per unit, a $76 per unit variable cost, an average default rate of 3 percent, and a monthly interest rate of 1.25 percent. What is the net present value of a new repeat customer who never defaults on his or her payment?

Correct Answer
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Exam 20: Credit and Inventory Management

Correct AnswerverifiedShow Answer

When evaluating the creditworthiness of a customer, the term capital refers to the:

Correct AnswerverifiedShow Answer

Winters' just purchased $42,911 of goods from its supplier with credit terms of 1/5, net 25. What is the discounted price?

Correct AnswerverifiedC

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

Correct AnswerverifiedShow Answer

The EOQ model is designed to determine how much:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Allison has developed a set of procedures for determining the amount of each raw material she needs to have in inventory if she is to keep the assembly lines operating efficiently. These procedures are commonly referred to by which one of the following terms?

Correct AnswerverifiedShow Answer

The accounts receivable approach to credit policy supports the theory that:

Correct AnswerverifiedA

Correct AnswerverifiedShow Answer

The terms of sale generally include all of the following except the:

Correct AnswerverifiedE

Which of the following characteristics are most associated with a firm that adopts a liberal credit policy?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Assume an average selling price of $547 per unit, a variable cost per unit of $339, a monthly interest rate of 1.1 percent, and a default rate of 3.1 percent. What is the NPV of extending credit for 30 days to all who are expected to become repeat customers?

Correct AnswerverifiedShow Answer

Each year, CTM sells 450 units of a product at a price of $639 each. The variable cost per unit is $421, the carrying cost per unit is $11.78, and the fixed order cost is $56. What is the economic order quantity?

Correct AnswerverifiedShow Answer

Inventory needs under a derived-demand inventory system are:

Correct AnswerverifiedShow Answer

Assume you are viewing a graph that 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

Assume a sales price of $119 per unit, a $76 per unit variable cost, an average default rate of 3 percent, and a monthly interest rate of 1.25 percent. What is the net present value of a new repeat customer who never defaults on his or her payment?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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C

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A

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E

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