FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 20: Credit and Inventory Management

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 191

Multiple Choice

Review LaterAdd Note

Review Later

Alex is new in town and has asked to establish credit with your firm. He would like to buy some lawn equipment today at a cost of $2,495. Your variable cost for that equipment is $1,875 and your monthly interest rate is 1.3 percent. You feel that Alex could become a regular customer if you grant him 30 days credit. You also feel that the probability of default is only 3 percent. What is the net present value of this decision?

A) $21,406
B) $22,009
C) $38,112
D) $44,387
E) $47,108

F) C) and D)
G) B) and E)

Correct Answer

verified

Show Answer

Question 192

True/False

Review LaterAdd Note

Review Later

ABC Co. is considering giving a 2% cash discount to its customers who pay within 10 days(the firm currently offers no discount). If it institutes this policy, it is likely that the buyers will be able to reduce their cost of goods sold, and buyers who do not take the discount will be using an expensive source of financing.

A) True
B) False

Correct Answer

verified

Show Answer

Question 193

Multiple Choice

Review LaterAdd Note

Each year you sell 1,200 units of a product at a price of $59.99 each. The variable cost per unit is $37.91 and the carrying cost per unit is $4.57. You have been buying 175 units at a time. Your fixed cost of ordering is $80. What is the economic order quantity?

A statistical technique for distinguishing between two samples on the basis of their observed characteristics is called a(n) :

One effect of granting credit to customers is that a firm may have to increase its borrowing if it decides to grant credit to its customers.

Karloff Medical Supply maintains an average inventory of 2,000 human skulls for sale to medical schools and filmmakers. The carrying cost per skull per year is estimated to be $5. Boris places an order for 10,000 skulls on the first of each month and the order cost is $75. What is the average inventory using the EOQ?

Custom Furniture provides handcrafted furniture made from raw timber. Each piece of furniture is custom designed with the color of the finish and the type of hardware (handles, knobs, etc.) to be applied chosen by the customer. A piece of furniture that has been cut and assembled and is now waiting for the finish and hardware would be counted in the _______ inventory of Custom Furniture.

An increase in consumer demand for the product will tend to lead to longer credit periods.

The total cost of granting credit has two components. ________ are the costs of lost sales incurred when credit is not granted and are inversely related to the amount of credit extended. ________ are the cash flows that are incurred when credit is granted and are positively related to the amount of credit extended.

Currently, your firm sells 440 units a month at a price of $90 a unit. You think you can increase your sales by an additional 200 units if you switch to a net 30 credit policy. The monthly interest rate is.7 percent and your variable cost per unit is $55. What is the incremental cash inflow of the proposed credit policy switch?

Provide a definition for cash discount.

The percentage cost of credit varies with the price of the item purchased.

High-demand products tend to have relatively short credit periods.

You are trying to attract new customers that you feel could become repeat customers. The average price of the items you sell is $93 with a $70 variable cost. Your monthly interest rate is 2.1 percent. Your experience tells you that 10 percent of these customers will never pay their bill. What is the value of a new customer who does not default on their bill?

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

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

Which of the following is the best definition of a cash discount.

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

Your current sales consist of 60 units per month at a price of $95 a unit. You are considering switching to a net 30 credit policy from your current cash only policy. If you switch, the credit price will be $100 and the cash price will be $95 a unit. The monthly interest rate is 1.25 percent. What is the break-even default rate of the proposed switch?

Provide a definition for five Cs of credit.