Question 1

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?

Accepted Answer

The set of procedures that Allison has developed for determining the amount of each raw material needed for inventory in order to keep assembly lines operating efficiently is known as materials requirements planning (MRP). MRP is a system used for inventory management and production planning that determines the materials needed in order to meet the demand for the final product.

Question 2

A firm's total investment in receivables depends primarily on the firm's:

Accepted Answer

The firm's total investment in receivables is influenced by the average collection period and the amount of credit sales. A longer average collection period means that the firm is extending credit for a longer period and, therefore, has a larger investment in receivables. Similarly, higher credit sales will require a larger investment in receivables as there are more outstanding receivables to manage.

Question 3

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

Accepted Answer

The five Cs of credit are character, capacity, capital, collateral, and conditions. "Character" refers to the borrower's credit history and reputation for paying debts. "Capacity" refers to the borrower's ability to repay the loan based on their income and other financial obligations. "Capital" refers to the borrower's net worth and financial assets. "Collateral" refers to any assets that the borrower pledges as security for the loan. "Conditions" refer to the overall economic environment and specific factors that may affect the borrower's ability to repay the loan.

Question 4

What is the primary purpose of credit analysis?

Accepted Answer

The primary purpose of credit analysis is to evaluate whether or not a customer will pay, taking into account factors such as credit history, financial stability, and payment track record. While the other options may be considered as part of the analysis, the ultimate goal is to determine the likelihood of receiving payment from the customer.

Question 5

Which one of the following is a system for managing demand-dependent inventories that minimizes the inventory levels of a firm?

Accepted Answer

Just-in-time inventory is a system for managing demand-dependent inventories that focuses on minimizing inventory levels by receiving inventory just in time for production or sale. This approach can reduce storage costs and the risk of dead inventory, leading to more efficient and profitable operations. Turnover planning, net working capital planning, inventory scoring, and inventory ranking are also important inventory management concepts, but they do not specifically prioritize minimizing inventory levels like just-in-time inventory does.

Question 6

Bill is in charge of the inventory for Home Builder's Supply.As an inventory item gets low,he is to restock the item by a quantity that minimizes the total inventory costs for that item.What is this restocking quantity called?

Accepted Answer

The restocking quantity that minimizes the total inventory costs is called the economic order quantity (EOQ). Therefore, choice C is the best answer. Choices A, B, D, and E are incorrect because they do not accurately describe the concept of EOQ.

Question 7

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

Accepted Answer

The 2 percent discount offered by Geoff Industries to its credit customers for paying within 10 days is known as a cash discount. It is a type of sales discount that encourages customers to pay their invoices early and helps the seller to manage their cash flow.

Question 8

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

Accepted Answer

Jillian's job is to assess creditworthiness, which is important in determining the likelihood of customers defaulting on their charges. This falls under the domain of credit analysis.

Question 9

Town Hardware sells goods on credit with payment due 30 days after purchase.If payment is not received by the 30^th day,the store mails a friendly reminder to the customer.If payment is not received by the 45^th day,the store calls the customer and requests payment and also stops offering credit to that customer.These procedures are referred to as the store's:

Accepted Answer

The procedures mentioned in the scenario relate to the store's collection policy, which outlines the steps the store takes to collect payments from customers who have purchased goods on credit. The other options are not relevant to the given context.

Question 10

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:

Accepted Answer

The 30-day period granted by Phil's Print Shop to its customers is referred to as the credit period. This is the period of time in which customers are allowed to pay for the goods or services they have received on credit. Therefore, the best choice is D, credit period. The other options do not accurately describe this specific time period.

Question 11

The period of time that extends from the day a credit sale is made until the day the bank credits a firm's account with the payment for that sale is known as the _____ period.

Accepted Answer

The accounts receivable period is the time between when a credit sale is made and when the payment is received and credited to the firm's account.

Question 12

Scott purchased a shovel,a rake,and a wheelbarrow from The Local Hardware Store yesterday.Today,the store issued a bill for these items and mailed it to Scott.What is the name given to this bill?

Accepted Answer

An invoice is a bill issued by a seller to a buyer, indicating the products or services provided and the amount due.

Question 13

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:

Accepted Answer

The credit offering described in the question is known as terms of sale. Terms of sale refers to the conditions under which a seller will sell its goods or services to a buyer, including payment terms such as discounts for early payment and the timeframe in which payment is due.

Question 14

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

Accepted Answer

An increase in average daily credit sales will result in a higher investment in accounts receivables as more customers are purchasing goods on credit.

Question 15

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?

Accepted Answer

The report being compiled is an aging schedule, which categorizes unpaid invoices by the number of days they have been outstanding. The report is then sorted by customer name and the amounts in each column are totaled. The other answer choices do not accurately describe the purpose or content of this report.

Question 16

The terms of sale generally include which of the following?
I.type of credit instrument
II.cash discount
III.credit period
IV.discount period

Accepted Answer

The terms of sale typically encompass all of these elements: the type of credit instrument to be used (e.g., promissory note, trade acceptance), cash discount options for early payment, the credit period over which payment can be made, and the discount period during which a cash discount is available for early payment.

Question 17

You are viewing a graph which compares costs with the amount of credit extended.Both the carrying costs and the opportunity costs of credit are depicted.What is the function called that represents the summation of these carrying and opportunity costs?

Accepted Answer

The function that represents the summation of carrying and opportunity costs is commonly referred to as a credit cost curve. This curve shows the total cost of extending credit for a given level of credit extended, taking into account both the direct costs of financing the credit and the opportunity cost of not receiving payment immediately. The other answer choices (A, B, D, E) do not accurately describe the function depicted in the graph.

Question 18

Any written proof that a customer owes you money for goods or services provided is referred to as a(n):

Accepted Answer

The answer of Any written proof that a customer owes...

Question 19

Assume that RSF is a wholly-owned subsidiary of the Rolled Steel Company.RSF provides credit financing solely for large ticket items purchased from the Rolled Steel Company.Which one of the following terms describes RSF?

Accepted Answer

RSF is a captive finance company because it only provides financing for purchases made from its parent company.

Question 20

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:

Accepted Answer

The process of computing a numerical value to estimate the probability that a customer will default if credit is granted to them is known as credit scoring.

Quiz 20: Credit and Inventory Management