A2/10, Net 30 Credit Policy

question 57

Multiple Choice

A2/10, net 30 credit policy:

• A) Is an expensive form of short-term credit if a buyer foregoes the discount.
• B) Provides cheap financing to the buyer for 30 days.
• C) Is an inexpensive means of reducing the seller's collection period if everyone takes the discount.
• D) Tends to have little effect on the seller's collection period due to the high effective interest rate.
• E) Tends to increase a firm's investment in receivables as compared to a straight net 30 policy.

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Definitions:

Manufacturing Overhead

Represents all the indirect costs associated with the production process of a company, including utilities, depreciation, and salaries not directly tied to specific units of product.

Direct Labor

The cost of wages and benefits for employees directly involved in the production of goods or services.

Raw Materials

The initial inputs in production, including basic substances used to manufacture goods.

Direct Labor

The cost of wages for the employees who are directly involved in producing a product or delivering a service.