Companies a and B Both Report Net Income Growth of 12

question 110

Multiple Choice

Companies A and B both report net income growth of 12% per year.Company A has a receivables turnover ratio of 5.6,which is lower last year.Company B has a receivables turnover ratio of 11.3,which is higher than last year.All other things being equal:

• A) Company A is more effectively managing its receivables.
• B) Company B is more effectively managing its receivables.
• C) Company A's days to collect is lower than Company B's in both years.
• D) Company B's days to collect increased.

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Definitions:

Direct Materials

Raw materials that are directly traceable to the manufacturing of products and significantly contribute to the product's cost.

Direct Labor

Direct labor costs are the wages and related expenses paid to employees who directly work on the production of goods or services.

Product Costs

Direct costs attributable to the production of goods, including direct labor, materials, and manufacturing overhead, capitalized as inventory and then expensed as sold.

Total Period Costs

All expenses incurred by a business that are not directly tied to the production of goods or services within a specific period.