True/False Quiz

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Chapter 10:   Accounts Receivable and Inventory Management

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1. The best credit standard policy is one that minimizes bad debt losses.

2. To accelerate the turnover of receivables, a firm may either shorten the discount period or increase the discount offered.

3. The risk-return trade-off involved in a less strict credit policy means additional sales, but as a result the new customers tend to be slower in paying.

4. The expression "3/10, net 45" means that the customers receive a 10 percent discount if they pay within 3 days; otherwise, they must pay within 45 days with no discount.

5. A first step in collecting past due receivables is to use the services of a collection agency.

6. The carrying costs of inventory are those combined costs of storing, handling, and insurance and do not include the opportunity cost of funds.

7. The ABC method of inventory control was developed by a national television network of the same name.

8. The quality of Dun & Bradstreet credit reports is in large measure only as good as the willingness of the company being checked out to cooperate.

9. Uncertainty in demand for inventory as well as in lead time creates the need for a safety stock.

10. Determining the EOQ involves a trade-off between the economies of a large quantity per order and the costs of carrying a larger inventory.

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