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Exam 20: Credit and Inventory Management

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Question 31

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Which one of the following statements is correct in regards to credit periods?

A) Perishable items tend to have longer credit periods.
B) Items with low markups tend to have longer credit periods.
C) Smaller accounts tend to have longer credit periods.
D) Different customers may be offered different credit periods by the same firm.
E) Newer products tend to have shorter credit periods.

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

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Question 32

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The period of time that extends from the day a credit sale is made until the day the bank credits a firm's account with the payment for that sale is known as the _____ period.

A) float
B) cash collection
C) sales
D) accounts receivable
E) discount

F) A) and E)
G) D) and E)

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Question 33

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

Assume all suppliers to a large retail chain offer credit terms of 2/10,net 30.The retail chain consistently takes the 2 percent discount and pays in 60 days.When pressed on the issue,the retail chain tells the suppliers they can either accept the payments as they currently are or lose the business.Is this ethical? How might this impact a small supplier versus a large supplier? Explain.

You are doing some comparison shopping.Five stores offer the product you want at basically the same price.Which one of the following stores offers the best credit terms if you plan to forego the discount?

The Cycle Shoppe has decided to offer credit to its customers during the spring selling season.Sales are expected to be 330 bicycles.The average cost to the shop of a bicycle is $300.The owner knows that only 93 percent of the customers will be able to make their payments.To identify the remaining 7 percent,she is considering subscribing to a credit agency.The initial charge for this service is $540,with an additional charge of $6 per individual report.What is the amount of the net savings from subscribing to the credit agency?

Which two of the following are the key elements in determining whether or not a switch from a no-credit policy to a credit policy is advisable? I.variable cost per unit II.cash discount percentage III.credit price IV.default rate

You have recently been hired as an accounting intern for Jefferson Mills.The job that you have been assigned for today is to compile a spreadsheet that has six columns.The column headings are: Invoice #; Customer name; < 30 days; 31-60 days; 61-90 days; > 90 days.You are to list every unpaid invoice by customer name with the amount owed entered into the appropriate column for the number of days between the sale date and today.Once you have completed that,you are to sort the report by customer name and then total the amounts listed in each column.What is this report called?

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

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

Which one of the following is a system for managing demand-dependent inventories that minimizes the inventory levels of a firm?

You have the opportunity to make a one-time sale if you will give a new customer 30 days to pay.You suspect there is a 10 percent chance this person will never pay you.The sales price of the item the customer wants to buy is $289.Your variable cost on that item is $156 and your monthly interest rate is 1.75 percent.Should you grant credit to this customer? Why or why not?

The Green Hornet offers a trade discount with terms of 2/5,EOM.Assume you purchase an item on credit from The Green Hornet on Monday,November 3.What is the invoice date for this purchase?

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

Under your current cash sales only policy you sell 132 units a month for a total sales value of $9,900.Your variable cost per unit is $44 and your monthly interest rate is 1 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?

The Dilana Corporation is considering a change in its cash-only policy.The new terms would be net one period.The required return is 2 percent per period.What is the NPV of the new policy given the following information?

Currently,Glasgow Importers sells 280 units a month at a price of $729 a unit.The firm believes it can increase its sales by an additional 40 units if it switches to a net 30 credit policy.The monthly interest rate is 0.5 percent and the variable cost per unit is $480.What is the net present value of the proposed credit policy switch?

Roger's Home Appliances offers credit to customers it deems worthy of this privilege.To determine if a customer is worthy,the firm computes a numerical value which is used to estimate the probability that the customer will default if credit is granted to them.The process of computing this numerical value is referred to as:

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

Each year you sell 950 units of a product at a price of $899 each.The variable cost per unit is $575 and the carrying cost per unit is $16.90.You have been buying 100 units at a time.Your fixed cost of ordering is $60.What is the economic order quantity?