The Cost of Trade Credit Varies Directly with the Size

question 103

True/False

The cost of trade credit varies directly with the size of the cash discount and inversely with the length of time between the end of the discount period and the final due date.

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Definitions:

Fixed Costs

Fixed costs are expenses that do not change with the level of production or sales, such as rent, salaries, and insurance premiums.

Variable Costs

Expenses that change in proportion with the level of business activity or production volume, such as raw materials and direct labor costs.

Target Income

The desired profit level that a company aims to achieve within a specific period, often used in budgeting and financial planning.

Contribution Margin

The amount of revenue remaining after subtracting variable costs, used to cover fixed costs and generate profit.