Question 1

The Green Hornet offers credit terms of 2/5, net 20. Based on experience, 93 percent of all customers will take the discount. The firm sells 487 units each month at a price of $649 each. What is the average book value of accounts receivable? Assume a 365-day year.

Accepted Answer

A)   $60,274
B)   $68,272
C)   $62,866
D)   $67,012
E)   $65,387F) A) and B)
G) None of the above

Question 2

Under its current cash sales only policy Willard's Co. sells 176 units a month for a total sales value of $11,848. The variable cost per unit is $33 and the monthly interest rate is 1.1 percent. The firm should sell an additional 25 units per month if it offers a net 30 credit policy. What is the present value of the proposed switch using the accounts receivable approach?

Accepted Answer

A)   $55,976
B)   $65,323
C)   $69,081
D)   $70,224
E)   $73,566F) None of the above
G) A) and B)

Question 3

A trade discount of 2/5th, EOM terms:

Accepted Answer

A)   grants customers five days to pay after month end.
B)   offers no credit to customers.
C)   means the full amount is due by the 5ᵗʰ of the month following the month of sale.
D)   means the invoice is overdue only after month-end.
E)   means the full amount is due the last day of the month following the month of sale.F) D) and E)
G) B) and E)

Question 4

A supplier grants credit terms of 1/5, net 30. What is the effective annual rate of the discount on a purchase of $5,000?

Accepted Answer

A)   17.24 percent
B)   15.80 percent
C)   18.80 percent
D)   19.03 percent
E)   12.27 percentF) B) and E)
G) B) and C)

Question 5

Phil's Print Shop grants its customers the right to pay for their print jobs within 30 days of the ROG. Thus, the customers' credit period begins when they:

Accepted Answer

A)   review and approve the print order.
B)   renew their contract on a revolving print order.
C)   reorder a previously approved print job.
D)   receive their print jobs.
E)   request a new job be printed.F) C) and D)
G) B) and E)

Question 6

Home Accents currently sells 219 units a month at a price of $46 a unit. If it switches to a net 30 credit policy, monthly sales are expected to increase by 28 units. The monthly interest rate is .57 percent and the variable cost per unit is $21. What is the net present value of the proposed credit policy switch?

Accepted Answer

A)   $112,145
B)   $108,895
C)   $106,507
D)   $586,799
E)   $621,135F) All of the above
G) A) and D)

Question 7

The Painted House offers credit terms of 2/10ᵗʰ, EOM. Assume you purchase an item on credit from this store on Monday, November 3. When is payment due for this purchase if you do not take the discount?

Accepted Answer

A)   November 3
B)   November 13
C)   November 30
D)   December 31
E)   December 10F) C) and D)
G) All of the above

Question 8

The incremental investment in receivables under the accounts receivable approach is equal to:

Accepted Answer

A)   P − νQ'.
B)   PQ'.
C)   PQ + ν(Q' − Q) .
D)   P(Q' − Q) .
E)   PQ(Q' − Q) .F) A) and C)
G) C) and D)

Question 9

The primary purpose of credit analysis is to:

Accepted Answer

A)   determine the optimal credit period.
B)   analyze the effects of granting a cash discount.
C)   determine the optimal discount period, if any.
D)   summarize the frequency and amount of sales by customer.
E)   evaluate whether or not a customer will pay.F) A) and B)
G) A) and E)

Question 10

Cape May Products currently sells 487 units a month at a price of $79 a unit. The firm believes it can increase its sales by an additional 42 units if it switches to a net 30 credit policy. The monthly interest rate is .25 percent and the variable cost per unit is $31.50. What is the incremental cash inflow from the proposed credit policy switch?

Accepted Answer

A)   $1,774
B)   $1,995
C)   $2,746
D)   $3,318
E)   $3,375F) D) and E)
G) C) and D)

Question 11

Sawyer's currently sells 70 units per month at a price of $412.50 a unit. The firm is considering switching to a 30 day credit policy with a credit sales price of $429.69 a unit and a cash price of $412.50. The monthly interest rate is 1.17 percent. What is the break-even default rate of the proposed switch?

Accepted Answer

A)   2.88 percent
B)   3.68 percent
C)   3.19 percent
D)   2.71 percent
E)   3.06 percentF) All of the above
G) A) and D)

Question 12

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

Accepted Answer

A)   Wrenches held in inventory by a hardware store
B)   Tires held in inventory by a tractor manufacturer
C)   Shoes on display in a retail store
D)   Toys just received by a toy store
E)   Wheat harvested by a farmerF) B) and E)
G) A) and D)

Question 13

Jillian was recently hired to determine the probability that individual customers of a major retailer will fail to pay for their charge sales. Jillian's job best relates to which one of the following?

Accepted Answer

A)   Terms of sale
B)   Credit analysis
C)   Collection policy
D)   Payables policy
E)   Customer serviceF) C) and E)
G) A) and E)

Question 14

The Cycle Shoppe has decided to offer credit to its customers during the spring selling season. Sales are expected to be 64 bikes with an average cost of $329 each. Four percent of customers are expected to default. To help identify those individuals, the shop is considering subscribing to a credit agency. The initial charge for their services is $250 with an additional charge of $7.50 per individual report. What is the amount of the net savings from subscribing to the credit agency?

Accepted Answer

A)   $108
B)   $92
C)   $84
D)   $112
E)   $103F) A) and C)
G) A) and B)

Question 15

Which one of the following statements is correct if you purchase an item with credit terms of  3/15, net 45?

Accepted Answer

A)   If you pay within 3 days, you will receive a discount of 15 percent.
B)   If you pay within 15 days, you will receive a discount of 3 percent.
C)   If you do not pay within 15 days, you will be charged interest at a rate of 3 percent per month.
D)   If you pay 3 percent of your purchases within 15 days, you will have 45 days to pay for the remainder.
E)   One-third of your purchase is due in 15 days and the rest is due in 45 days.F) D) and E)
G) B) and D)

Question 16

You are currently selling 48 units a month at a price of $199 a unit. Your variable cost of each unit is $87. If you switch from your current cash sales only policy to a net 30 policy you think your sales will increase to a total of 55 units per month. The monthly interest rate is 1.2 percent. What is the present value of this switch using the accounts receivable approach?

Accepted Answer

A)   $55,172
B)   $64,829
C)   $80,822
D)   $76,516
E)   $41,520F) None of the above
G) B) and E)

Question 17

Which one of these is frequently cited as an appropriate upper limit to the credit period offered by a seller?

Accepted Answer

A)   The buyer's inventory period
B)   The seller's inventory period
C)   The seller's operating cycle
D)   The buyer's operating cycle
E)   The buyer's receivables periodF) A) and B)
G) C) and D)

Question 18

The Electronics Store begins each week with 60 gadgets in stock. This stock is depleted and reordered weekly. The carrying cost per gadget is $21 per year and the fixed order cost is $45. What is the optimal number of orders that should be placed each year?

Accepted Answer

A)   19
B)   27
C)   23
D)   15
E)   33F) None of the above
G) B) and C)

Question 19

Which one of the following credit instruments is commonly used in international commerce?

Accepted Answer

A)   Open account
B)   Sight draft
C)   Time draft
D)   Banker's acceptance
E)   Promissory noteF) A) and D)
G) D) and E)

Question 20

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)   capacity, character, collateral, capital, and conditions.F) A) and C)
G) All of the above

Exam 20: Credit and Inventory Management

The Painted House offers credit terms of 2/10ᵗʰ, EOM. Assume you purchase an item on credit from this store on Monday, November 3. When is payment due for this purchase if you do not take the discount?

Correct Answer
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A supplier grants credit terms of 1/5, net 30. What is the effective annual rate of the discount on a purchase of $5,000?

Correct Answer
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The Green Hornet offers credit terms of 2/5, net 20. Based on experience, 93 percent of all customers will take the discount. The firm sells 487 units each month at a price of $649 each. What is the average book value of accounts receivable? Assume a 365-day year.

Correct Answer
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Correct Answer
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Which one of the following statements is correct if you purchase an item with credit terms of 3/15, net 45?

Correct Answer
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The primary purpose of credit analysis is to:

Correct Answer
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Which one of these is frequently cited as an appropriate upper limit to the credit period offered by a seller?

Correct Answer
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Correct Answer
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Correct Answer
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A trade discount of 2/5th, EOM terms:

Correct Answer
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Jillian was recently hired to determine the probability that individual customers of a major retailer will fail to pay for their charge sales. Jillian's job best relates to which one of the following?

Correct Answer
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Correct Answer
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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 ROG. Thus, the customers' credit period begins when they:

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

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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The incremental investment in receivables under the accounts receivable approach is equal to:

Correct Answer
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Which one of the following credit instruments is commonly used in international commerce?

Correct Answer
verified

The Electronics Store begins each week with 60 gadgets in stock. This stock is depleted and reordered weekly. The carrying cost per gadget is $21 per year and the fixed order cost is $45. What is the optimal number of orders that should be placed each year?

Correct Answer
verified

Exam 20: Credit and Inventory Management

The Painted House offers credit terms of 2/10ᵗʰ, EOM. Assume you purchase an item on credit from this store on Monday, November 3. When is payment due for this purchase if you do not take the discount?

Correct AnswerverifiedShow Answer

A supplier grants credit terms of 1/5, net 30. What is the effective annual rate of the discount on a purchase of $5,000?

Correct AnswerverifiedShow Answer

The Green Hornet offers credit terms of 2/5, net 20. Based on experience, 93 percent of all customers will take the discount. The firm sells 487 units each month at a price of $649 each. What is the average book value of accounts receivable? Assume a 365-day year.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following statements is correct if you purchase an item with credit terms of 3/15, net 45?

Correct AnswerverifiedShow Answer

The primary purpose of credit analysis is to:

Correct AnswerverifiedShow Answer

Which one of these is frequently cited as an appropriate upper limit to the credit period offered by a seller?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A trade discount of 2/5th, EOM terms:

Correct AnswerverifiedShow Answer

Jillian was recently hired to determine the probability that individual customers of a major retailer will fail to pay for their charge sales. Jillian's job best relates to which one of the following?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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 ROG. Thus, the customers' credit period begins when they:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The incremental investment in receivables under the accounts receivable approach is equal to:

Correct AnswerverifiedShow Answer

Which one of the following credit instruments is commonly used in international commerce?

Correct AnswerverifiedShow Answer

The Electronics Store begins each week with 60 gadgets in stock. This stock is depleted and reordered weekly. The carrying cost per gadget is $21 per year and the fixed order cost is $45. What is the optimal number of orders that should be placed each year?

Correct AnswerverifiedShow Answer

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