Question 1

One of the best selling items L.T.Ten offers sells for $9.99 a unit.The variable cost per unit is $6.38 and the carrying cost per unit is $1.12.The firm sells 6,500 of these units each year.The fixed cost to order this item is $75.What is the economic order quantity?

Accepted Answer

A)  690 units
B)  747 units
C)  933 units
D)  1,157 units
E)  1,260 unitsF) A) and E)
G) All of the above

Question 2

At the optimal order quantity size,the:

Accepted Answer

A)  total cost of holding inventory is fully offset by the restocking costs.
B)  carrying costs are equal to zero.
C)  restocking costs are equal to zero.
D)  total costs equal the carrying costs.
E)  carrying costs equal the restocking costs.F) A) and C)
G) D) and E)

Question 3

Roger's Store begins each week with 150 phasers in stock.This stock is depleted each week and reordered.The carrying cost per phaser is $48 per year and the fixed order cost is $70.What is the optimal number of orders that should be placed each year?

Accepted Answer

A)  48.69
B)  51.71
C)  54.20
D)  61.10
E)  64.50F) A) and B)
G) D) and E)

Question 4

The EOQ model is designed to minimize:

Accepted Answer

A)  production costs.
B)  inventory obsolescence.
C)  the carrying costs of inventory.
D)  the costs of replenishing inventory.
E)  the total costs of holding inventory.F) C) and D)
G) A) and C)

Question 5

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 E)
G) None of the above

Question 6

Why might firms forego discounts offered by their suppliers even though it is costly to do so?
 What steps might a firm pursue to be able to take these discounts?

Accepted Answer

Firms will forego discounts when there i...

Question 7

Which of the following statements correctly reflect the effects of granting credit to customers?
I.Total revenues may increase if both the quantity sold and the price per unit increase when credit is granted.
II.A firm's cash cycle generally increases if credit is granted,all else equal.
III.Both the cost of default and the cost of discounts must be considered before granting credit.
IV.A firm may have to increase its long-term borrowing if it decides to grant credit to its customers.

Accepted Answer

A)  I, II, and III only
B)  II, III, and IV only
C)  I, III, and IV only
D)  I, II, and IV only
E)  I, II, III, and IVF) A) and D)
G) A) and B)

Question 8

Which two of the following are the key considerations for a seller who is establishing the length of the credit period being offered to a customer?
I.seller's operating cycle
II.customer's operating cycle
III.seller's inventory period
IV.customer's inventory period

Accepted Answer

A)  I and II
B)  II and III
C)  III and IV
D)  II and IV
E)  I and IVF) A) and D)
G) B) and D)

Question 9

A supplier grants your firm credit terms of 2/10,net 40.What is the effective annual rate of the discount if the firm purchases $4,800 worth of merchandise?

Accepted Answer

A)  27.24 percent
B)  26.57 percent
C)  28.80 percent
D)  29.03 percent
E)  29.27 percentF) A) and E)
G) A) and D)

Question 10

The Cellar Door currently sells 9,620 units a month for total monthly sales of $316,000.The company is considering replacing its current cash only credit policy with a net 30 policy.The variable cost per unit is $15 and the monthly interest rate is 1.5 percent.What is the switch break-even level of sales?

Accepted Answer

A)  9,711 units
B)  9,779 units
C)  9,814 units
D)  9,957 units
E)  9,889 unitsF) B) and E)
G) All of the above

Question 11

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?

Accepted Answer

A)  November 3
B)  November 5
C)  November 7
D)  November 8
E)  November 30F) A) and E)
G) None of the above

Question 12

Keep M Flying is a wholesaler that stocks engine components and test equipment for the commercial aircraft industry.A new customer has placed an order for eight high-bypass turbine engines,which increase fuel economy.The variable cost is $1.7 million per unit,and the credit price is $2.1 million each.Credit is extended for one period.Based on historical experience,payment for about 1 out of every 240 such orders is never collected.The required return is 3.2 percent per period.What is the NPV per unit if this is a one-time order?

Accepted Answer

A)  $316,407
B)  $321,819
C)  $326,405
D)  $334,290
E)  $351,056F) C) and E)
G) A) and B)

Question 13

A conditional sales contract:

Accepted Answer

A)  passes title to the goods sold to the buyer at the time the contract is signed.
B)  normally calls for one lump sum payment on the contract payment date.
C)  generally has a built-in interest cost.
D)  is payable immediately upon receipt.
E)  is a formal bid for a project.F) A) and D)
G) A) and C)

Question 14

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

Accepted Answer

A)  cereal ready to be bagged and shipped to stores
B)  tires held in inventory by an auto maker
C)  shoes on display in a retail store
D)  toys ready to be shipped to toy stores
E)  wheat harvested by a farmerF) None of the above
G) All of the above

Question 15

The ABC approach to inventory management is based on the concept that:

Accepted Answer

A)  inventory should arrive just in time to be used.
B)  the inventory period should be constant for all inventory items.
C)  basic inventory items that are essential to production and also inexpensive should be ordered in small quantities only.
D)  a small percentage of the inventory items probably represents a large percentage of the inventory cost.
E)  one-third of a year's inventory need should be on hand, another third should be on order, and the last third should not be ordered yet.F) A) and B)
G) A) and E)

Question 16

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

Accepted Answer

A)  I and III only
B)  II and IV only
C)  II and III only
D)  I and IV only
E)  III and IV onlyF) A) and C)
G) B) and C)

Question 17

Which one of the five Cs of credit refers to a firm's financial reserves?

Accepted Answer

A)  character
B)  capacity
C)  collateral
D)  conditions
E)  capitalF) B) and C)
G) A) and E)

Question 18

The optimal amount of credit equates the incremental costs of carrying the increase in accounts receivable to the incremental:

Accepted Answer

A)  decrease in the cash cycle.
B)  benefit from decreasing the inventory level.
C)  cash flows from increased sales.
D)  increase in bad debts.
E)  gain in net profits.F) A) and E)
G) A) and D)

Question 19

Which one of the following will increase a firm's investment in accounts receivables?

Accepted Answer

A)  a decrease in the number of days for which credit is granted
B)  a decrease in credit sales
C)  an increase in cash sales
D)  a decrease in the average collection period
E)  an increase in average daily credit salesF) C) and D)
G) A) and D)

Question 20

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 variable cost of the sold items.
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)  foregoing cash discounts is a method of obtaining inexpensive short-term financing.
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) D) and E)
G) A) and E)

Exam 20: Credit and Inventory Management

The optimal amount of credit equates the incremental costs of carrying the increase in accounts receivable to the incremental:

Correct Answer
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Roger's Store begins each week with 150 phasers in stock.This stock is depleted each week and reordered.The carrying cost per phaser is $48 per year and the fixed order cost is $70.What is the optimal number of orders that should be placed each year?

Correct Answer
verified

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

Correct Answer
verified

Which one of the following will increase a firm's investment in accounts receivables?

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
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A conditional sales contract:

Correct Answer
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Why might firms forego discounts offered by their suppliers even though it is costly to do so? What steps might a firm pursue to be able to take these discounts?

Correct Answer
verified
Firms will forego discounts when there i...
View Answer

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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One of the best selling items L.T.Ten offers sells for $9.99 a unit.The variable cost per unit is $6.38 and the carrying cost per unit is $1.12.The firm sells 6,500 of these units each year.The fixed cost to order this item is $75.What is the economic order quantity?

Correct Answer
verified

Which two of the following are the key considerations for a seller who is establishing the length of the credit period being offered to a customer? I.seller's operating cycle II.customer's operating cycle III.seller's inventory period IV.customer's inventory period

Correct Answer
verified

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?

Correct Answer
verified

Correct Answer
verified

At the optimal order quantity size,the:

Correct Answer
verified

A supplier grants your firm credit terms of 2/10,net 40.What is the effective annual rate of the discount if the firm purchases $4,800 worth of merchandise?

Correct Answer
verified

Which one of the five Cs of credit refers to a firm's financial reserves?

Correct Answer
verified

The ABC approach to inventory management is based on the concept that:

Correct Answer
verified

The EOQ model is designed to minimize:

Correct Answer
verified

Exam 20: Credit and Inventory Management

The optimal amount of credit equates the incremental costs of carrying the increase in accounts receivable to the incremental:

Correct AnswerverifiedShow Answer

Roger's Store begins each week with 150 phasers in stock.This stock is depleted each week and reordered.The carrying cost per phaser is $48 per year and the fixed order cost is $70.What is the optimal number of orders that should be placed each year?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which one of the following will increase a firm's investment in accounts receivables?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A conditional sales contract:

Correct AnswerverifiedShow Answer

Why might firms forego discounts offered by their suppliers even though it is costly to do so? What steps might a firm pursue to be able to take these discounts?

Correct AnswerverifiedFirms will forego discounts when there i...View AnswerShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

One of the best selling items L.T.Ten offers sells for $9.99 a unit.The variable cost per unit is $6.38 and the carrying cost per unit is $1.12.The firm sells 6,500 of these units each year.The fixed cost to order this item is $75.What is the economic order quantity?

Correct AnswerverifiedShow Answer

Which two of the following are the key considerations for a seller who is establishing the length of the credit period being offered to a customer? I.seller's operating cycle II.customer's operating cycle III.seller's inventory period IV.customer's inventory period

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

At the optimal order quantity size,the:

Correct AnswerverifiedShow Answer

A supplier grants your firm credit terms of 2/10,net 40.What is the effective annual rate of the discount if the firm purchases $4,800 worth of merchandise?

Correct AnswerverifiedShow Answer

Which one of the five Cs of credit refers to a firm's financial reserves?

Correct AnswerverifiedShow Answer

The ABC approach to inventory management is based on the concept that:

Correct AnswerverifiedShow Answer

The EOQ model is designed to minimize:

Correct AnswerverifiedShow Answer

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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Correct Answer
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Firms will forego discounts when there i...
View Answer

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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