1.Dodd Tool is currently selling a product for $10 per unit. Sales (all on credit) for last year were 60,000 units. The variable cost per unit is $6. The firms total fixed costs are $120,000.The firm is currently contemplating a relaxation of credit standards.Because variable costs are sunk and therefore are unaffected by a change in the sales level, the only cost relevant to a change in sales is fixed costs.
Select one:
a. True
b. False
2. The objective for managing accounts receivable is to collect accounts receivable as quickly as possible without losing sales from high-pressure collection techniques. Accomplishing this goal encompasses
Select one:
a. one topic: the credit selection and standards
b. three topics: (1) credit selection and standards, (2) credit terms, and (3) credit monitoring.
c. None of the above
d. one topic: the credit terms
2
3. A firm is considering relaxing credit standards, which will result in annual sales increasing from $1.5 million to $1.75 million, the cost of annual sales increasing from $1,000,000 to $1,125,000, and the average collection period increasing from 40 to 55 days. The bad debt loss is expected to increase from 1 percent of sales to 1.5 percent of sales. The firm's required return on investments is 20 percent. The firm's cost of marginal investment in accounts receivable is ________. (Assume a 360-day year.)
Select one:
a. $5,556
b. $152,778
c. $12,153
d. $9,944
