What Credit Decision Is Appropriate for a Potential Customer That

question 14

Multiple Choice

What credit decision is appropriate for a potential customer that offers an 80% chance of paying on a $10,000 sale that has an 80% cost?

• A) Grant credit since the expected profit is $3,200.
• B) Grant credit since the expected profit is $800.
• C) Refuse credit since the expected profit is zero.
• D)Refuse credit since the expected loss is $3,000.

---

Definitions:

Overhead Cost

General expenses related to the operation of a business that cannot be directly attributed to a specific product or service.

Product S1

A specific item or version of a product, likely distinguished by unique features or specifications.

Product Margin

The profit generated by selling a product, calculated by subtracting the cost of goods sold from the sales revenue of that product.

Overhead Cost

Expenses not directly tied to production activities, such as rent, utilities, and administrative costs.