Samana Corporation Expects to Receive $1,500 Along with Costs of $1,000

question 64

Multiple Choice

Samana Corporation expects to receive $1,500 along with costs of $1,000 on each non-delinquent sale on credit.The probability of collection is 60%.Determine whether credit should be extended.

• A)Extend credit - net benefit of $100
• B)Extend credit - net benefit of $0
• C)Do not extend credit - net detriment of $100
• D)Do not extend credit - net detriment of $200 p x PV(REV - COST) - (1-p) x PV(COST)

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Definitions:

Rate Variance

The difference between the expected rate of return on a project or investment and the actual rate achieved.

Total Direct Labor Cost Variance

The difference between the actual cost of direct labor used in production and the expected (or standard) cost.

Materials Price Variance

The difference between the actual cost of materials and the expected cost at standard prices, indicating how much was saved or overspent.

Materials Quantity Variance

The difference between the actual quantity of materials used in production and the standard quantity expected to be used, valued at the standard cost.