Question 1

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. 
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.

Question 2

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 units 
A) 690 units 
B) 747 units 
C) 933 units 
D) 1,157 units 
E) 1,260 units

Question 3

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

Question 4

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 farmer 
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 farmer

Question 5

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. 
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.

Question 6

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

Question 7

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 30 
A) November 3 
B) November 5 
C) November 7 
D) November 8 
E) November 30

Question 8

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 sales 
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 sales

Question 9

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. 
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.

Question 10

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 11

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) capital 
A) character 
B) capacity 
C) collateral 
D) conditions 
E) capital

Question 12

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 note 
A) open account 
B) sight draft 
C) time draft 
D) banker's acceptance 
E) promissory note

Question 13

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 units 
A) 9,711 units 
B) 9,779 units 
C) 9,814 units 
D) 9,957 units 
E) 9,889 units

Question 14

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 IV 
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 IV

Question 15

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

Question 16

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

Question 17

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. 
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.

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. 
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.

Question 19

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) 64.50 
A) 48.69 
B) 51.71 
C) 54.20 
D) 61.10 
E) 64.50

Question 20

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. 
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.

Exam 20: Credit and Inventory Management

The EOQ model is designed to minimize:

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?

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

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

A conditional sales contract:

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

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?

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

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

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?

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

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

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?

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

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

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?

At the optimal order quantity size,the:

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