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Exam 20: Credit and Inventory Management

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Question 131

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The Dress Designer uses 15,000 zippers a year in its production process. Currently, it purchases 1,000 zippers at a time and replenishes its inventory when it is depleted. The carrying cost per Zipper is $.39. The fixed order cost is $35. How should The Dress Designer change its order Quantity?

A) Decrease of 359 units.
B) No change.
C) Increase of 359 units.
D) Increase of 641 units.
E) Increase of 1,641 units.

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

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Question 132

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Average collection period/average daily sales correctly specifies the level of the firm's receivables balance.

A) True
B) False

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Question 133

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Your company purchased $10,000 worth of inventory January 2 on credit. The terms of sale are 3/15 net 45. What is the effective annual interest rate if you pay the full amount in 45 days?

Under your current cash sales only policy you sell 280 units a month at a price of $35. Your variable cost per unit is $21 and your monthly interest rate is 1 percent. Based on a recent survey, you Believe that you can sell an additional 85 units per month if you offer a net 30 credit policy. What is The net present value of the switch using the one-shot approach?

Provide a definition for credit scoring.

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

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.

You are considering setting up a booth at a street fair in a town not far from where you are located. Any sale you make will be a one-time sale. There is only a 50 percent chance that you will collect Your money on a credit sale. The product you want to sell has a variable cost of $3.90 and a sales Price of $5.00. The monthly interest rate is 1.5 percent. Should you offer people 30 days to pay? Why or why not?

You are currently selling 60 units a month at a price of $195 a unit. Your variable cost of each unit is $145. If you switch from your current cash sales only policy to a net 30 policy you think your sales will increase to a total of 100 units per month. Your monthly interest rate is 1.5 percent. What is the net present value of this proposed switch using the accounts receivable approach?

The procedures followed by the firm for ensuring payment on its accounts receivables are called its ______________.

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

Considering the 5 C's of credit, what does collateral signify?

Under your current cash sales only policy you sell 680 units a month for a total sales value of $101,320. Your variable cost per unit is $77 and your monthly interest rate is 1 percent. Based on a Recent survey, you believe that you can sell an additional 275 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 restocking quantity that minimizes the firm's total inventory costs is called the:

You are currently selling 75 units a month at a price of $495 a unit. Your variable cost of each unit is $360.If you switch from your current cash sales only policy to a net 30 policy you think your sales will increase by 20 percent. Your monthly interest rate is 1 percent. What is the net present value of This proposed switch using the accounts receivable approach?

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

Why is the buyer's operating cycle considered to be an appropriate upper limit for the credit period? (Be sure to define what the operating cycle is.) Wouldn't the buyer's inventory period be a better target?

On average your firm sells $26,500 of items on credit each day. Your average operating cycle is 51 days and your firm acquires and sells inventory on average every 19 days. What is your average Accounts receivable balance?

The total investment in receivables mainly depends on the amount of credit sales and the average collection period.

Quidi Vidi Co. has 325 motors in its inventory at the start of the week. It will use all of these in its weekly production runs and then resupply its inventory for the next week. The carrying cost per Motor is $84.26. The fixed cost per order is $63. The variable cost per motor is $122. What is the total carrying cost of the motor inventory?