Which Ratio Indicates the Effectiveness of a Company's Credit Extension

question 92

Multiple Choice

Which ratio indicates the effectiveness of a company's credit extension policy?

• A) inventory turnover
• B) accounts payable turnover
• C) days sales outstanding
• D) days inventory on hand

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Definitions:

Resource Consumption

The amount of resources, such as materials, energy, or time, used in the production of goods or services.

Activity Rates

The charges or costs applied to specific activities or cost drivers in activity-based costing.

Activity-Based Costing

A costing method that assigns overhead and indirect costs to specific products or projects based on their activity levels.

Overhead Cost

Expenses that are not directly attributed to creating a product or service but are necessary for running the business, such as rent, utilities, and office supplies.