Question 1

Under your current cash sales only policy you sell 110 units a month for a total sales value of $7,590. Your variable cost per unit is $38 and your monthly interest rate is 1.7 percent. Based on a recent survey, you believe that you can sell an additional 30 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?

Accepted Answer

A)   $45,976
B)   $47,116
C)   $49,081
D)   $50,224
E)   $53,566F) C) and E)
G) B) and C)

Question 2

Which of the following is not considered a carrying cost for the firm when it grants credit?

Accepted Answer

A)   The required return on receivables.
B)   Losses from bad debts.
C)   The cost of managing credit.
D)   The cost of managing credit collections.
E)   Cost of new analyzing potential new suppliers.F) C) and D)
G) A) and C)

Question 3

You are trying to attract new customers that you feel could become repeat customers. The average price of the items you sell is $16 with a $9.50 variable cost. Your monthly interest rate is 1.5 percent. Your experience tells you that 6 percent of these customers will never pay their bill. What would be the net present value of this decision?

Accepted Answer

A)   -$217
B)   -$198
C)   $17
D)   $351
E)   $398F) A) and E)
G) A) and C)

Question 4

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 finished goods level of inventory.
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 D)

Question 5

Which one of the following statements is correct concerning the length of the credit period?

Accepted Answer

A)   Credit periods are relatively constant across industries.
B)   A seller's credit period is not affected by the buyer's inventory cycle.
C)   The buyer's operating cycle affects the length of a seller's credit period.
D)   A seller's credit period should be longer than the buyer's operating cycle.
E)   A seller's credit period should approximate the length of the buyer's receivables period.F) B) and D)
G) A) and C)

Question 6

It would be common for a firm which has adhered to a cash sales policy to experience an increase in production output immediately following the time the firm converts to a credit policy.

Accepted Answer

A) True 
 B)False

Question 7

Taylor and Swanson currently sells on a cash basis only. The firm is considering switching to a 30-day credit policy. When analyzing the cost benefit of this switching policy, the firm should consider the credit price.

Accepted Answer

A) True 
 B)False

Question 8

What is the NPV of switching?

Accepted Answer

A)   -$5,000
B)   -$4,750
C)   $8,775
D)   $9,515
E)   $12,143F) B) and E)
G) A) and B)

Question 9

Peg's Toys manufactures 89,500 toys a year. As a normal procedure, the company orders raw materials in increments such that each order produces 500 toys. The fixed cost per order is $35. The toys wholesale at a price of $7.35 and have a variable cost of $3.98. What is the total restocking cost?

Accepted Answer

A)   $2,025
B)   $3,500
C)   $3,625
D)   $5,050
E)   $6,265F) None of the above
G) All of the above

Question 10

Relatively standardized products tend to have relatively short credit periods.

Accepted Answer

A) True 
 B)False

Question 11

Provide a definition for aging schedule.

Accepted Answer

A compilation of acc...

Question 12

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 are the total carrying costs using the EOQ?

Accepted Answer

A)   $3,184
B)   $4,102
C)   $4,743
D)   $4,981
E)   $5,169F) D) and E)
G) A) and B)

Question 13

Off Roadin' Inc. builds customized ATVs. On average, it uses 40 tires a day in its manufacturing process. It takes 4 days to receive a shipment of tires once an order is placed. Off Roadin' has a policy of maintaining 80 tires as a safety stock. What is the reorder point level of inventory?

Accepted Answer

A)   0
B)   80
C)   160
D)   240
E)   320F) A) and E)
G) B) and E)

Question 14

The minimum level of inventory a firm keeps on hand at any given time is called its:

Accepted Answer

A)   Net working capital in inventory.
B)   Shortage cost.
C)   Economic order quantity.
D)   Safety stock.
E)   Reorder point.F) D) and E)
G) C) and D)

Question 15

Which of the following is the best definition of a spread.

Accepted Answer

A)   The gap between the interest rate a bank pays on deposits and the rate it charges on loans.
B)   Statistical technique for distinguishing between two samples on the basis of their observed characteristics.
C)   Design for inventory in which parts, raw materials, and other work-in-process are delivered exactly as needed for production. Goal is to minimize inventory.
D)   Bill for goods or services provided by the seller to the purchaser.
E)   The process of quantifying the probability of default when granting consumer credit.F) A) and B)
G) A) and E)

Question 16

Your company is considering granting credit to a new customer. The price per unit is $165 and the variable cost per unit is $150. The monthly interest rate is 0.8%. The customer will pay in 30 days if he does not default. If the customer does not default, he will buy one unit every month forever. What is the break-even default percent?

Accepted Answer

A)   3.7%
B)   8.0%
C)   61.5%
D)   88.0%
E)   92.0%F) D) and E)
G) A) and D)

Question 17

Balboa Enterprises currently sells 13,650 units a month for total monthly sales of $272,863.50. The company is considering replacing its current cash only credit policy with a net 30 policy. The variable cost per unit is $11.30 and the monthly interest rate is 1 percent. What is the switch break-even level of sales?

Accepted Answer

A)   13,492 units
B)   13,525 units
C)   13,600 units
D)   13,968 units
E)   14,069 unitsF) B) and E)
G) All of the above

Question 18

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

Accepted Answer

A)   (P - v) * Q*.
B)   PQ*.
C)   P * (Q*- Q) .
D)   (P * Q)  + [v *(Q* - Q) ].
E)   (P * Q) *(Q* - Q) .F) A) and B)
G) B) and C)

Question 19

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 are the total restocking costs using the EOQ?

Accepted Answer

A)   $3,184
B)   $4,102
C)   $4,744
D)   $4,981
E)   $5,169F) A) and D)
G) C) and E)

Question 20

Provide a definition for credit scoring.

Accepted Answer

The process of quant...

Exam 20: Credit and Inventory Management

The minimum level of inventory a firm keeps on hand at any given time is called its:

Correct Answer
verified

Provide a definition for aging schedule.

Correct Answer
verified
A compilation of acc...
View Answer

Off Roadin' Inc. builds customized ATVs. On average, it uses 40 tires a day in its manufacturing process. It takes 4 days to receive a shipment of tires once an order is placed. Off Roadin' has a policy of maintaining 80 tires as a safety stock. What is the reorder point level of inventory?

Correct Answer
verified

What is the NPV of switching?

Correct Answer
verified

Which of the following is not considered a carrying cost for the firm when it grants credit?

Correct Answer
verified

Correct Answer
verified

Which one of the following statements is correct concerning the length of the credit period?

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Relatively standardized products tend to have relatively short credit periods.

Correct Answer
verified

Provide a definition for credit scoring.

Correct Answer
verified
The process of quant...
View Answer

Peg's Toys manufactures 89,500 toys a year. As a normal procedure, the company orders raw materials in increments such that each order produces 500 toys. The fixed cost per order is $35. The toys wholesale at a price of $7.35 and have a variable cost of $3.98. What is the total restocking cost?

Correct Answer
verified

Correct Answer
verified

Inventory needs under a derived-demand inventory system are:

Correct Answer
verified

Which of the following is the best definition of a spread.

Correct Answer
verified

Taylor and Swanson currently sells on a cash basis only. The firm is considering switching to a 30-day credit policy. When analyzing the cost benefit of this switching policy, the firm should consider the credit price.

Correct Answer
verified

It would be common for a firm which has adhered to a cash sales policy to experience an increase in production output immediately following the time the firm converts to a credit policy.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Exam 20: Credit and Inventory Management

The minimum level of inventory a firm keeps on hand at any given time is called its:

Correct AnswerverifiedShow Answer

Provide a definition for aging schedule.

Correct AnswerverifiedA compilation of acc...View AnswerShow Answer

Off Roadin' Inc. builds customized ATVs. On average, it uses 40 tires a day in its manufacturing process. It takes 4 days to receive a shipment of tires once an order is placed. Off Roadin' has a policy of maintaining 80 tires as a safety stock. What is the reorder point level of inventory?

Correct AnswerverifiedShow Answer

What is the NPV of switching?

Correct AnswerverifiedShow Answer

Which of the following is not considered a carrying cost for the firm when it grants credit?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following statements is correct concerning the length of the credit period?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Relatively standardized products tend to have relatively short credit periods.

Correct AnswerverifiedShow Answer

Provide a definition for credit scoring.

Correct AnswerverifiedThe process of quant...View AnswerShow Answer

Peg's Toys manufactures 89,500 toys a year. As a normal procedure, the company orders raw materials in increments such that each order produces 500 toys. The fixed cost per order is $35. The toys wholesale at a price of $7.35 and have a variable cost of $3.98. What is the total restocking cost?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Inventory needs under a derived-demand inventory system are:

Correct AnswerverifiedShow Answer

Which of the following is the best definition of a spread.

Correct AnswerverifiedShow Answer

Taylor and Swanson currently sells on a cash basis only. The firm is considering switching to a 30-day credit policy. When analyzing the cost benefit of this switching policy, the firm should consider the credit price.

Correct AnswerverifiedShow Answer

It would be common for a firm which has adhered to a cash sales policy to experience an increase in production output immediately following the time the firm converts to a credit policy.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
A compilation of acc...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The process of quant...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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