Chapter 18

104  Chapter 18/Management of Accounts Receivable and Inventories
Chapter 18
Management of Accounts Receivable and Inventories
MULTIPLE CHOICE
1. The credit policy variables that a firm can use to exercise control over its level of receivables
investment include
a. credit standards
b. credit terms
c. collection effort
d. credit standards, credit terms, and collection effort
ANS: D OBJ: TYPE: Fact
TOP: Shareholder Wealth and optimal investments in accounts recei
2. Possible sources of relevant information about a credit applicant include

a. financial statements submitted by the applicant
b. credit reporting organizations
c. U.S. Department of Commerce
d. the applicant’s financial statements and credit reporting agencies
ANS: D OBJ: TYPE: Fact TOP: Gathering information on the credit applicant
3. ________are useful in monitoring the status and composition of a firm's accounts receivable.
a. Numerical credit scoring systems
b. Aging of accounts schedules
c. Seasonal datings
d. Aging of accounts schedules and seasonal datings
ANS: B OBJ: TYPE: Fact TOP: Monitoring accounts receivable
4. The _______ measures the promptness with which customers repay their credit obligations.
a. bad-debt loss ratio
b. average collection period
c. credit term
d. cash discount
ANS: B OBJ: TYPE: Fact TOP: Credit standards
5. Which of the following is(are) not related to the extension of credit to customers?
a. compensating balances
b. cash discounts
c. quantity discounts
d. compensating balances and quantity discounts
TOP: Shareholder wealth and optimal investments in accounts recei
6. The average collection period measures the:

a. number of days between when a typical credit sale is made and when the firm receives the
payment
b. number of days it takes a typical check to "clear" through the banking system
c. number of days beyond the end of the credit period before a typical customer payment is
received
d. number of days before a typical account becomes delinquent
ANS: A OBJ: TYPE: Fact TOP: Credit standards
7. Relaxing (i.e., lowering) the firm's credit standards is likely to result in

a. lower sales
b. smaller bad-debt losses
c. a shorter average collection period
d. possible higher pre-tax profits
ANS: D OBJ: TYPE: Fact TOP: Credit standards
8. Which of the following is not a cost related to the extension of credit to customers?
a. bad-debt losses
b. cash discounts
c. quantity discounts
d. collection costs
ANS: C OBJ: TYPE: Fact
9. The primary objective of offering a cash discount is to

a. reduce the firm's level of receivables investment
b. reduce the number of bad checks received from customers
c. encourage customers to place their orders prior to the peak selling period
d. avoid just-in-time orders
ANS: A OBJ: TYPE: Fact TOP: Cash discounts
10. Lengthening the credit period is likely to result in all of the following except
a. higher sales
b. more cash sales
c. larger investment in receivables
d. longer average collection period
ANS: B OBJ: TYPE: Fact TOP: Credit terms
11. The objective of offering seasonal datings to customers is to

a. encourage customers to place their orders prior to the peak selling period
b. speed up the collection of accounts receivable
c. increase the firm's inventory storage costs
d. reduce the number of bad checks received from customers
ANS: A OBJ: TYPE: Fact TOP: Seasonal datings
Chapter 18/Management of Accounts Receivable and Inventories  106
12. For the firm with a seasonal sales pattern, offering seasonal datings to its customers is likely to
result in
a. increased sales
b. higher inventory investment and warehousing costs
c. lower receivables investment cost
d. an offer of a cash discount
ANS: A OBJ: TYPE: Fact TOP: Seasonal datings
13. The most widely known credit reporting organization is:

a. Moody's
b. Standard and Poors
c. National Association of Credit Management
d. Dun and Bradstreet
ANS: D OBJ: TYPE: Fact TOP: Gathering information on the credit applicant
14. Capacity, which is one of the traditional "five Cs" of credit analysis, refers to
a. the general economic climate and its effect on the applicant's ability to pay
b. the willingness of the applicant to meet its financial obligations
c. the financial strength of the applicant (i.e., net worth)
d. the ability of an applicant to meet its financial obligations
TOP: Analyzing credit-worthiness and making the credit decision
15. Character, which is one of the traditional "five Cs" of credit analysis, refers to
a. the ability of the applicant to meet its financial obligations (i.e., liquidity and cash flow)
b. the general economic climate and its effect on the applicant's ability to pay
c. the financial strength of the applicant (i.e., net worth)
d. the willingness of the applicant to meet it’s financial obligations
16. Potential losses can occur in the credit evaluation process when
a. credit is denied to a credit-worthy customer
b. the credit decision is delayed too long
c. credit is denied to a customer who is not credit worthy
d. credit is denied to a credit-worthy customer and the credit decision is delayed too long
ANS: D OBJ: TYPE: Fact TOP: Evaluating individual credit applicants
17. The effect of a change in a firm's credit terms from "net 30" to "2/10, net 30" on its customer's
balance sheets is likely to be
a. decreased accounts receivable
b. increased accounts receivable
c. decreased accounts payable
d. increased accounts payable
ANS: C OBJ: TYPE: Fact TOP: Cash discounts
18. The effect of a change in a firm's credit terms from "net 30" to "2/10, net 30" on its own balance
sheet is likely to be
a. decreased accounts receivable
b. increased accounts receivable
c. decreased accounts payable
d. increased accounts payable
ANS: A OBJ: TYPE: Fact TOP: Cash discounts
19. The primary goal of accounts receivable management should be

a. minimizing lost sales
b. maximizing shareholder wealth
c. increasing market share
d. minimizing receivables investment
ANS: B OBJ: TYPE: Fact
20. Traditional discussion of guidelines for examining credit worthiness include "the five Cs of
credit". Each of the following is one of the "five Cs" except
a. capacity
b. cooperation
c. character
d. conditions
ANS: B OBJ: TYPE: Fact
21. All other things being equal, the application of a seasonal dating to the terms of credit offered by
the firms below would be expected to generate additional sales for each firm except
a. a Christmas novelty manufacturer
b. an agricultural implements manufacturer
c. a wholesale frozen food supplier
d. a swimsuit manufacturer
ANS: C OBJ: TYPE: Fact TOP: Seasonal datings
22. Increasing collection expenditures is likely to result in

a. a shorter average collection period
b. reduced bad-debt losses
c. higher accounts receivable balances
d. a shorter average collection period and reduced bad-debt losses
ANS: D OBJ: TYPE: Fact TOP: Collection effort
23. _______ are the criteria the firm uses to screen credit applicants in order to determine which of its
customers should be offered credit and how much.
a. Credit terms
b. Credit standards
c. Seasonal datings
d. Credit extension policies
ANS: B OBJ: TYPE: Fact TOP: Credit standards
24. All the following are assumptions of the basic EOQ model except:
a. annual demand known with certainty
b. ordering costs fluctuate
c. demand is uniform throughout the year
d. orders are filled instantaneously
ANS: B OBJ: TYPE: Fact TOP: Basic EOQ model
25. The _____ is the inventory level at which an order should be placed for replenishment of an item.
a. nonzero inventory level
b. safety stock
c. reorder point
d. inventory quantity
ANS: C OBJ: TYPE: Fact TOP: Nonzero lead time
26. The types of inventories that manufacturing firms generally hold include all the following except:
a. raw materials
b. working stock
c. finished goods
d. work-in-process
ANS: B OBJ: TYPE: Fact TOP: Inventory management
27. In general, the _____ a firm's production cycle, the _____ its work-in-process inventory.
a. longer, larger
b. longer, smaller
c. shorter, larger
d. length of cycle is not related to amount of work-in-process
ANS: A OBJ: TYPE: Fact TOP: Work-in-process inventories
28. When an order is placed for an item that is manufactured internally within a company, ordering
costs consist primarily of _____.
a. storage and handling costs
b. deterioration costs
c. production set-up costs
d. carrying costs
ANS: C OBJ: TYPE: Fact TOP: Ordering costs
29. All of the following are components of carrying costs except:

a. insurance
b. storage costs
c. handling costs
d. set-up costs
ANS: D OBJ: TYPE: Fact TOP: Carrying costs
30. The cost of funds invested in inventories is measured by the _____.

a. cost of insuring the inventory
b. stockout costs
c. required rate of return
d. rate of interest on borrowed funds
ANS: C OBJ: TYPE: Fact TOP: Carrying costs
31. To minimize the possibility of running out of inventory, most companies add a ____ to their
inventory.
a. safety stock
b. lead time stock level
c. few days
d. replenishment factor
ANS: A OBJ: TYPE: Fact TOP: Probabilistic inventory control models
32. Safety stock is needed to absorb

a. changes in accounts receivables
b. cyclical changes
c. random fluctuations in sales
d. annual model changes
ANS: C OBJ: TYPE: Fact TOP: Probabilistic inventory control models
33. The reorder point is

a. the lead time multiplied by the daily usage plus safety stock
b. the EOQ plus safety stock
c. the lead time multiplied by the annual usage
d. a product of daily usage and the lead time
ANS: A OBJ: TYPE: Fact TOP: Nonzero lead time
34. Mace Auto Parts Company sells to retail auto supply stores on credit terms of "net 60". Annual
credit sales are $300 million (spread evenly throughout the year) and its accounts average 28 days
overdue. The firm's variable cost ratio is 0.75 (i.e., variable costs are 75 percent of sales). When
converting from annual to daily data or vice versa, assume there are 365 days per year. Determine
Mace's average collection period.
a. 88 days
b. 44 days
c. 74 days
d. 60 days
ANS: A
Solution:
Average collection period = 60 + 28 = 88 days
OBJ: TYPE: E. Prob. TOP: Average collection period
overdue. The firm's variable cost ratio is 0.75 (i.e., variable costs are 75 percent of sales). When
converting from annual to daily data or vice versa, assume there are 365 days per year. Determine
Mace's average investment in receivables.
a. $ 821,918
b. $ 3,409,091
c. $72,328,767
d. $ 82,192
ANS: C
Solution:
Average Investment in Receivables = $300,000,000 x 88 /365 = $72,328,767
OBJ: TYPE: E. Prob. TOP: Receivables investment
overdue. The firm's variable cost ratio is 0.75 (i.e. variable costs are 75 percent of sales). When
converting from annual to daily data or vice versa, assume there are 365 days per year. Suppose
that Mace's sales are expected to increase by 20 percent next year and, through more effective
collection methods, the firm is able to reduce its average collection period by 20 days. Determine
the firm's average investment in receivables for next year under these conditions.
a. $67,068,493
b. $56,666,667
c. $ 5,294,118
d. $ 98,630
ANS: A
Solution:
Average investment in receivables = $360,000,000 /365 x 68 = $67,068,493
OBJ: TYPE: E. Prob. TOP: Receivables investment
37. Warren Motor Company sells $30 million of its products to wholesalers on terms of "net 30."
Currently, the firm's average collection period is 48 days. In an effort to speed up the collection of
receivables, Warren is considering offering a cash discount of 2 percent if customers pay their
bills within 10 days. The firm expects 50 percent of it's customers to take the discount and it's
average collection period to decline to 30 days. The firm's required pretax return (i.e. opportunity
cost) on receivables investment is 16 percent. Determine the cost of the cash discounts to Warren.
a. $300,000
b. $ 60,000
c. $ 40,000
d. $ 48,000
ANS: A
Solution:
Cost of cash discounts = $30,000,000 x 0.50 x 0.02 = $300,000
OBJ: TYPE: E. Prob. TOP: Cost of cash discounts

cost) on receivables investment is 16 percent. Determine Warren's pretax earnings on the funds
released from the reduction in receivables. (Assume a 365 day year)
a. $1,479,452
b. $236,712
c. $266,667
d. $1,082,191
ANS: B
Solution:
Reduction in A/R = $30,000,000/365 x 48 - $30,000,000/365 x 30 = $1,479,452
Earnings on Released Funds = $1,479,452 x 0.16 = $236,712
OBJ: TYPE: E. Prob. TOP: Credit terms analysis
cost) on receivables investment is 16 percent. Determine the net effect on Warren's pretax profits
of offering a 2 percent cash discount.
a. $ 300,000
b. $236,712
c. -$63,288
d. -$236,712
ANS: C
Solution:
Net Change in Pretax Profits = $236,712 - $300,000 = -$63,288
OBJ: TYPE: E. Prob. TOP: Credit terms analysis
40. Bluegrass Distilleries, Inc. refuses to extend credit to any wholesale distributors who have a
history of being delinquent in repaying credit extended to them. This policy results in lost sales of
$10 million annually. Based on past experience with these types of customers, the firm estimates
that the average collection period would be 90 days and that the bad-debt loss ratio would be 6
percent. The firm's variable cost ratio is 0.80, making its profit contribution ratio 0.20. Bluegrass
Distilleries' required pretax return (i.e., opportunity cost) on receivables investments is 20
percent. When converting from annual to daily or vice versa, assume there are 365 days per year.
If Bluegrass Distilleries extends credit to these (previously delinquent) customers, determine the
increase in the investment in receivables.
a. $27,397
b. $2,465,753
c. $111,111
d. $125,000
ANS: B
Solution:
Additional receivables investment = $10,000,000/365 x 90 = $2,465,753
OBJ: TYPE: E. Prob. TOP: Credit terms
41. Whirlewind Company sells to retail appliance stores on credit terms of net 30. Annual credit sales
are $182,500,000 spread evenly throughout the year and its accounts average 20 days overdue.
The firm's variable cost ratio is 0.70. Determine Whirlewind's average investment in receivables.
(Assume 365 days per year an all calculations.)
a. $17,500,000
b. $25,000,000
c. $15,000,000
d. cannot be determined from the information provided
ANS: B
Solution:
Average collection period = 30 + 20 = 50 days
Average investment in receivables = ($182,500,000)/365) x 50 = $25,000,000
OBJ: TYPE: E. Prob. TOP: Receivables investment calculation
42. If a lawn mower assembly plant orders 25,000 frames per year at a price of $27 each, what is the
EOQ if the ordering cost per order is $35 and the annual inventory carrying cost is 12 percent?
a. 735
b. 255
c. 567
d. 520
ANS: A
Solution:
Q = [(( 2)(35)(25,000))/(.12)(27)].5 = 734.9
OBJ: TYPE: E. Prob. TOP: EOQ model
43. What is the optimal length of one inventory cycle for a firm that has an economic order quantity
of 750 units, average daily demand of 68 units, and a price of $30 per unit?
a. 25 days
b. 11 days
c. 2.7 days
d. 331 days
ANS: B
Solution:
T = 750/68 = 11.03 or 11 days
OBJ: TYPE: E. Prob. TOP: Inventory cycle
44. Tool Mart sells 1400 electronic water pumps every year. These pumps cost $54.30 each. If annual
inventory carrying costs are 12% and the cost of placing an order is $90, what is the firm's EOQ?
a. 139
b. 122
c. 197
d. 148
ANS: C
Solution:
Q = [(2)(90)(1400))/(54.30)(.12)].5 = 196.66 or 197
inventory carrying costs are 12% and the cost of placing an order is $90, what is the optimal
ordering frequency?
a. 37 days
b. 32 days
c. 40 days
d. 51 days
ANS: D
Solution:
T = 197/(1400/365) = 51.3 or 51 days
inventory carrying costs are 12% and the cost of placing an order is $90, what is the total annual
inventory costs?
a. $1,923
b. $1,281
c. $3,406
d. $3,762
ANS: B
Solution:
TC = (1400/197)90 + (197/2)(54.30)(.12) = $1,281
47. Haulsee Inc. builds 800,000 golf carts a year and purchases the electronic motors for these carts
for $370 each. Ordering costs are $540 and Haulsee's inventory carrying costs average 14% of the
inventory value. What is the EOQ for Haulsee?
a. 4,084
b. 1,528
c. 2,890
d. 572
ANS: A
Solution:
Q = [(2)(540)(800,000))/(370)(.14)].5 = 4,084
inventory value. What is the total inventory costs?
a. $565,445
b. $224,331
c. $211,555
d. $21,155,120
ANS: C
Solution:
TC = 800,000(540) + 4084 (51.80)
4, 084 2
= $211,554
OBJ: TYPE: E. Prob. TOP: Inventory costs
inventory value. What is the optimal ordering frequency?
a. 0.70 days
b. 1.86 days
c. 5.18 days
d. 8.64 days
ANS: B
Solution:
T = 365(4084) = 1.86
800,000
OBJ: TYPE: E. Prob. TOP: Optimal ordering frequency
50. Technico manufactures about 800,000 solar calculators per year. The computer chip used in the
calculator cost $4.80 each and the cost of placing an order is $65. If the carrying costs are 16%,
what is the EOQ for the chips.
a. 25,495
b. 3,162
c. 8, 229
d. 11,637
ANS: D
Solution:
Q = [((2)(65)(800,000))/.768].5 = 11,637
51. Willoughby Industries, Inc. is considering whether to discontinue offering credit to customers
who are more than 10 days overdue on repaying the credit extended to them. Current annual
credit sales are $10 million on credit terms of "net 30". Such a change in policy is expected to
reduce sales by 10 percent, cut the firm's bad-debt losses from 5 to 3 percent, and reduce its
average collection period from 72 days to 45 days. The firm's variable cost ratio is 0.70 (profit
contribution ratio is 0.30) and its required pretax return (i.e. opportunity cost) on receivables
investments is 25 percent. Determine the net effect of this credit tightening policy on the pretax
profits of Willoughby. When converting from annual to daily data or vice versa, assume that there
are 365 days per year.
a. -$ 863,014
b. $145,753
c. -$ 70,000
d. $300,000
ANS: B
Solution:
Reduction in Profit Contribution = $1,000,000 x 0.30 = $300,000
Reduction in A/R = $10,000,000/365 x 72 - $9,000,000/365 x 45 = $863,014
Earnings on Released Funds = $863,014 x 0.25 = $215,753
Decrease in Bad-Debt Losses = $10,000,000 x 0.05 - $9,000,000 x 0.03 = $230,000
Net Change in Pretax Profits = $215,753 + $230,000 - $300,000 = $145,753
OBJ: TYPE: C. Prob. TOP: Credit standards analysis

percent. When converting from annual to daily data or vice versa, assume there are 365 days per
year. If Bluegrass extends full credit to these (previously delinquent) customers, determine the
total increase in credit-related costs.
a. $1,000,000
b. $1,093,151
c. $400,000
d. $600,000
ANS: B
Solution:
Cost of additional receivables investment = $10,000,000/365 x 90 x 0.20 = $493,151
Bad debt losses = 0.06 x $10,000,000 = $600,000
Total costs = $493,151 + $600,000 = $1,093,151
OBJ: TYPE: C. Prob. TOP: Credit terms
percent. When converting from annual to daily data or vice versa, assume there are 365 days per
year. Determine the net effect on Bluegrass Distilleries' pretax profits of extending credit to these
(previously delinquent) customers
a. $906,849
b. $2,000,000
c. $306,849
d. $$1,500,000
ANS: A
Solution:
Net Change in Pretax Profits = $10,000,000 x 0.20 - ($10,000,000/365 x 90 x 0.20) -
0.06 x $10,000,000 = $906,849

54. The United Shoe Company (USC) does not extend credit to any retail shoe store with a "Fair" or
"Limited" Dun and Bradstreet credit rating. As a result of this policy the company loses
$36,500,000 in sales each year. Based on prior experience with these types of customers, USC
estimates that the average collection period would be 120 days and the bad-debt loss ratio would
be 10%. The firm's variable cost ratio is 0.75. USC's required pretax return on receivables
investments is 18%. Determine the net change in pretax profits of extending credit to these retail
shoe stores. (Assume 365 days per year in any calculations.)
a. $9,125,000
b. $3,315,000
c. -$1,095,000
d. $2,160,000
ANS: B
Solution:
Additional sales = $36,500,000
Marginal profitability of additional sales = 0.25 x $36,500,000 = $9,125,000
Additional investment in receivables = ($36,500,000/365) x 120 = $12,000,000
Cost of additional investment in receivables = $12,000,000 x 0.18 = $2,160,000
Additional bad-debt loss = 0.10 x $36,500,000 = $3,650,000
Net change in pretax profits = $9,125,000 - $2,160,000 - $3,650,000 = $3,315,000
OBJ: TYPE: C. Prob. TOP: Credit extension decision
55. Wallace Company sells $73 million of its products to retailers on credit terms of "net 30". Its
average collection period is 55 days. To speed up the collection of receivables, the company is
considering changing its credit terms to "2/10, net 30". The company expects 40% of its
customers to take the cash discount and its average collection period to decline to 35 days.
Wallace's required pretax rate of return on receivables investments is 15%. Determine the net
effect on Wallace's pretax profits of the change in credit terms. (Assume 365 days per year in any
calculations.)
a. -$860,000
b. $600,000
c. $16,000
d. $584,000
ANS: C
Solution:
Decrease in average receivables balance = ($73,000,000/365) x 55
- ($73,000,000/365) x 35 = $4,000,000
Earnings on funds released by the decrease in receivables
= $4,000,000 x 0.15 = $600,000
Cost of cash discount = $73,000,000 x 0.4 x 0.02 = $584,000
Net change in pretax profits = $600,000 - $584,000 = $16,000

56. RCMP has annual credit sales of $37 million. The credit terms are "net 30" and the current
average collection period is 45 days. RCMP is considering changing its terms to 1/10, net 30 in an
effort to reduce the average collection period. RCMP believes that 35% of its customers will take
the discount, reducing the average collection period to 33 days. Should RCMP offer the discount?
Assume the firm's required rate of return on its receivables investment is 14%.
a. No, pretax profits decrease $88,700
b. Yes, pretax profits increase $53,600
c. Yes, pretax profits increase $40,801
d. No, pretax profits decrease $40,801
ANS: C
Solution:
Reduction is rec. bal. = ($37,000,000/365)(45 - 33) = $1,216,438
Return on reduction = $1,216,438(0.14) = $170,301
Cost of discount = $37,000,000(0.35)(0.01) = $129,500
Net change = $170,301 - $129,500 = $40,801
57. Covers, Inc. (CI) sells its stainless steel products on terms of "2/10, net 40". CI is considering
granting credit to retailers with total assets as low as $500,000. Currently the lowest asset limit is
$750,000. CI believes sales will increase $7 million from the new credit group but the average
collection period for this new group will be 60 days versus the current average collection period
of 35 days. If management estimates that 20% of the new customers will take the cash discount
but 4% of the new business will be written off as a bad-debt loss, should CI lower its credit
standards? Assume CI's variable cost ratio is 0.7 and its required pretax rate of return on
receivables investment is 15%.
a. Yes, pretax profits increase $1,619,397
b. Yes, pretax profits increase $1,703,397
c. Yes, pretax profits increase $1,755,178
d. No, Pretax profits will decrease
ANS: A
Solution:
Profit on new sales = $7,000,000(1 - 0.7) = $2,100,000
Cost of new rec. = ($7,000,000/365)(60)(0.15) = $172,603
Cost new bad debt losses = $7,000,000(0.04) = $280,000
Additional cash discounts = 7,000,000(0.20)(0.02) = $28,000
Net change in pretax profit = $1,619,397
OBJ: TYPE: C. Prob. TOP: Credit standards

58. Cycles de Oro produces 120,000 high-tek bikes a year and orders the brake assembly from IKON
for $15.40 each. The order cost is $84 and Cycles estimates their inventory carrying costs are
15%. What is their total ordering cost per year?
a. $7,968
b. $3,412
c. $4,118
d. $6,437
ANS: B
Solution:
Q = [((2)(84)(120,000))/2.31].5 = 2,954
Order costs = 120,000 (84) = $3,412
2,954
OBJ: TYPE: C. Prob. TOP: EOQ order costs
ESSAY
1. How does an optimal credit extension policy impact a company’s accounts receivables?
ANS:
An optimal credit extension policy requires the company to examine and measure the marginal costs and
marginal benefits associated with alternative policies. A more liberal extension of credit to a company’s
customers stimulates sales and leads to increased profits, assuming all other factors remain constant.
There may also be increased investment in inventory. These profits are offset by credit-related marginal
costs including opportunity costs of the funds needed to support the higher level of receivables and
increased bad-debt expenses .
OBJ: TYPE: Fact TOP: Shareholder Wealth and optimal investments in accounts recei
2. What information could be used to judge the credit worthiness of a customer?
ANS:
Information is available from a variety of sources:
1. Financial statements submitted by the customer.
2. Credit reporting organizations
3. Banks
4. A company’s own past experience with the customer
OBJ: TYPE: Fact TOP: Gathering information on the credit applicant

3. What are the “five Cs of credit” and how are they used?
ANS:
1. Character
2. Capacity
3. Captial
4. Collateral
5. Conditions
A credit manager must be able to sort through a great deal of information to determine the
creditworthiness of the customer. He/she must be able to extract key elements and make a reliable overall
assessment. The “five C’s of credit” facilitate credit decisions and serve as a framework for analysis.
OBJ: TYPE: Fact TOP: Analyzing credit-worthiness and making the credit decision

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104  Chapter 18/Management of Accounts Receivable and Inventories

2. Possible sources of relevant information about a credit applicant include

6. The average collection period measures the:

7. Relaxing (i.e., lowering) the firm's credit standards is likely to result in

9. The primary objective of offering a cash discount is to

11. The objective of offering seasonal datings to customers is to

13. The most widely known credit reporting organization is:

19. The primary goal of accounts receivable management should be

22. Increasing collection expenditures is likely to result in

29. All of the following are components of carrying costs except:

30. The cost of funds invested in inventories is measured by the _____.

32. Safety stock is needed to absorb

33. The reorder point is

OBJ: TYPE: E. Prob. TOP: Receivables investment

OBJ: TYPE: E. Prob. TOP: Receivables investment

OBJ: TYPE: E. Prob. TOP: Cost of cash discounts

OBJ: TYPE: E. Prob. TOP: Optimal ordering frequency

OBJ: TYPE: E. Prob. TOP: EOQ model

OBJ: TYPE: C. Prob. TOP: Credit standards analysis

OBJ: TYPE: C. Prob. TOP: Credit terms

OBJ: TYPE: C. Prob. TOP: Credit terms

OBJ: TYPE: C. Prob. TOP: Credit extension decision

OBJ: TYPE: C. Prob. TOP: Credit terms

OBJ: TYPE: C. Prob. TOP: Credit terms

OBJ: TYPE: C. Prob. TOP: Credit standards

OBJ: TYPE: C. Prob. TOP: EOQ order costs

2. What information could be used to judge the credit worthiness of a customer?

OBJ: TYPE: Fact TOP: Gathering information on the credit applicant

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