Exam 20: Credit and Inventory Management

You are currently selling 48 units a month at a price of $199 a unit. Your variable cost of each unit is $87. 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 55 units per month. The monthly interest rate is 1.2 percent. What is the present value of this switch using the accounts receivable approach?

Which one of these is frequently cited as an appropriate upper limit to the credit period offered by a seller?

Cape May Products currently sells 487 units a month at a price of $79 a unit. The firm believes it can increase its sales by an additional 42 units if it switches to a net 30 credit policy. The monthly interest rate is .25 percent and the variable cost per unit is $31.50. What is the incremental cash inflow from the proposed credit policy switch?

Jillian was recently hired to determine the probability that individual customers of a major retailer will fail to pay for their charge sales. Jillian's job best relates to which one of the following?

The primary purpose of credit analysis is to:

The Painted House offers credit terms of 2/10ᵗʰ, EOM. Assume you purchase an item on credit from this store on Monday, November 3. When is payment due for this purchase if you do not take the discount?

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

Sawyer's currently sells 70 units per month at a price of $412.50 a unit. The firm is considering switching to a 30 day credit policy with a credit sales price of $429.69 a unit and a cash price of $412.50. The monthly interest rate is 1.17 percent. What is the break-even default rate of the proposed switch?

The Cycle Shoppe has decided to offer credit to its customers during the spring selling season. Sales are expected to be 64 bikes with an average cost of $329 each. Four percent of customers are expected to default. To help identify those individuals, the shop is considering subscribing to a credit agency. The initial charge for their services is $250 with an additional charge of $7.50 per individual report. What is the amount of the net savings from subscribing to the credit agency?

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

Which one of the following statements is correct if you purchase an item with credit terms of  3/15, net 45?

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

The Green Hornet offers credit terms of 2/5, net 20. Based on experience, 93 percent of all customers will take the discount. The firm sells 487 units each month at a price of $649 each. What is the average book value of accounts receivable? Assume a 365-day year.

Phil's Print Shop grants its customers the right to pay for their print jobs within 30 days of the ROG. Thus, the customers' credit period begins when they:

Under its current cash sales only policy Willard's Co. sells 176 units a month for a total sales value of $11,848. The variable cost per unit is $33 and the monthly interest rate is 1.1 percent. The firm should sell an additional 25 units per month if it offers a net 30 credit policy. What is the present value of the proposed switch using the accounts receivable approach?

Home Accents currently sells 219 units a month at a price of $46 a unit. If it switches to a net 30 credit policy, monthly sales are expected to increase by 28 units. The monthly interest rate is .57 percent and the variable cost per unit is $21. What is the net present value of the proposed credit policy switch?

The Electronics Store begins each week with 60 gadgets in stock. This stock is depleted and reordered weekly. The carrying cost per gadget is $21 per year and the fixed order cost is $45. What is the optimal number of orders that should be placed each year?

The basic factors to be evaluated in the credit evaluation process, the five Cs of credit, are:

A trade discount of 2/5th, EOM terms:

A supplier grants credit terms of 1/5, net 30. What is the effective annual rate of the discount on a purchase of $5,000?