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Exam 20: Credit and Inventory Management

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Question 31

Multiple Choice

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Weisbrough United currently sells 410 units a month at a price of $249 a unit. The variable cost per unit is $132 and the carrying cost per unit is $3.30. The monthly interest rate is 1.2 percent. The firm believes it can increase its sales to 475 units a month if it switches from its cash only to a net 30 credit policy. What is the present value of the switch using the one-shot approach?

A) $455,590
B) $523,080
C) $498,470
D) $502,233
E) $464,902

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

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Question 32

Multiple Choice

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Which one of the five Cs of credit refers to a customer's willingness to pay its bills?

A) Character
B) Capacity
C) Collateral
D) Conditions
E) Capital

F) A) and E)
G) C) and E)

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Question 33

Multiple Choice

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A 2/10, net 30 credit policy:

Lakeside Market sells 848 units of an item priced at $49 each year. The carrying cost per unit is $2.26 and the fixed costs per order are $46. What is the economic order quantity?

You can make a one-time sale if you will grant a new customer 30 days to pay.  This customer wants to purchase an item with a sales price of $499 and a variable cost of $287. You estimate the probability of default at 33 percent. The monthly interest rate is .98 percent. Should you grant credit to this customer? Why or why not?

Brown's Hardware offers a discount of two percent on their commercial accounts if payment is received within ten days. Otherwise, payment is due within 30 days. This credit offering is referred to as the:

A particular inventory manager orders items only in quantities that minimize inventory costs. What is this restocking quantity called?

Which one of the following factors most supports a longer credit period being offered to customers?

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

Roger's Home Appliances offers credit to customers it deems qualified based on a numerical value that estimates the probability that the customer will default if credit is granted to them. The process of computing this numerical value is referred to as:

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

Which one of the following is a characteristic of a just-in-time inventory system?

Cohen Industrial Products uses 3,600 switch assemblies per week and then reorders another 3,600 units. The annual carrying cost per switch assembly is $9.74, and the fixed order cost is $78. What is the EOQ?

Which one of the five Cs of credit refers to the general economic situation in the customer's line of business?

When considering a switch from an all-cash credit policy to a net 30 credit policy all of the following should be considered except the:

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

On average, CT Motors has daily credit sales of $42,390, an inventory period of 53 days, and a collection period of 26 days. What is the average accounts receivable balance?

High Mountain consistently sells 2,400 pairs of $189 skates annually. The fixed order costs is $56 and the carrying costs are $3.85 a pair. What is the economic order quantity?

One of the best-selling items the Corner Store offers sells for $3.99 a unit with a variable cost per unit of $2.88. The carrying cost per unit is $1.07 and the fixed order cost is $42. What is the economic order quantity assuming the store sells 650 units annually?

Saucier Co. currently sells 1,208 units a month for total monthly sales of $209,600. The firm is considering replacing its current cash only credit policy with a net 30 policy. The variable cost per unit is $106 and the monthly interest rate is .71 percent. What is the new sales quantity at the switch break-even level of sales? Assume the selling price per unit and the variable costs per unit remain constant.