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Exam 20: Credit and Inventory Management

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Question 1

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Which one of the following time periods is included in the accounts receivable period but not in the cash collection period?

A) the period of time between the receipt of a check and the availability of those funds
B) time it takes a firm to process incoming receipts
C) period of time a check is in the mail
D) the amount of time that it takes a bank to credit a firm's account for a deposit made
E) period of time it takes an invoice to reach a customer by mail

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

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Question 2

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The Turn It Up Corporation sells on credit terms of net 30. Its accounts are, on average, 6 days past due. Annual credit sales are $7 million. What is the company's balance sheet amount in accounts receivable?

A) $690,411
B) $723,333
C) $851,667
D) $915,407
E) $923,593

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

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Question 3

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You have recently been hired as an accounting intern for Jefferson Mills. The job that you have been assigned for today is to compile a spreadsheet that has six columns. The column headings are: Invoice #; Customer name; < 30 days; 31-60 days; 61-90 days; > 90 days. You are to list every unpaid invoice by customer name with the amount owed entered into the appropriate column for the number of days between the sale date and today. Once you have completed that, you are to sort the report by customer name and then total the amounts listed in each column. What is this report called?

Currently, The Toy Box sells 465 units a month at an average price of $39 a unit. The company thinks it can increase sales by an additional 130 units a month if it switches to a net 30 credit policy. The monthly interest rate is 0.4 percent and the variable cost per unit is $21. What is the incremental cash inflow of the proposed credit policy switch?

Music City, Inc. has an average collection period of 56 days. Its average daily investment in receivables is $50,000. What are the annual credit sales?

If you extend credit for a one-time sale to a new customer you risk an amount equal to:

Roger's Home Appliances offers credit to customers it deems worthy of this privilege. To determine if a customer is worthy, the firm computes a numerical value which is used to estimate 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 EOQ model is designed to minimize:

Geoff Industries offers its credit customers a 2 percent discount if they pay within 10 days. This discount is referred to as a:

Which one of the following inventory items is probably the most liquid?

You are considering switching from an all cash credit policy to a net 30 credit policy. You do not expect the switch to affect either your sales quantity or your sales price. Ignoring interest and assuming that every month has 30 days, your net present value of the switch will be equal to:

Quest, Inc., is considering a change in its cash-only sales policy. The new terms of sale would be one month. The required return is 1.6 percent per month. Based on the following information, what is the NPV of the new policy?

Cape May Products currently sells 650 units a month at a price of $59 a unit. The firm believes it can increase its sales by an additional 125 units if it switches to a net 30 credit policy. The monthly interest rate is 0.35 percent and the variable cost per unit is $38. What is the incremental cash inflow from the proposed credit policy switch?

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

Allison has developed a set of procedures for determining the amount of each raw material that she needs to have in inventory if she is to keep her firm's assembly lines operating efficiently. These procedures are commonly referred to by which one of the following terms?

Which one of the following factors tends to favor longer credit periods?

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?

You have the opportunity to make a one-time sale if you will give a new customer 30 days to pay. You suspect there is a 15 percent chance this person will never pay you. The sales price of the item the customer wants to buy is $289. Your variable cost on that item is $156 and your monthly interest rate is 1.75 percent. Should you grant credit to this customer? Why or why not?

Blackwell Brothers sells men's suits. The store offers a 1 percent discount if payment is received within 10 days. Otherwise, payment is due within 30 days. This credit offering is referred to as the:

Phil's Print Shop grants its customers the right to pay for their print jobs within 30 days of the date of service. This 30-day period is referred to as the: