Which of the Following Strategies Would Continue to Be Effective

question 78

Multiple Choice

Which of the following strategies would continue to be effective if a cash-strapped firm determines that the effective interest rate charged on trade credit is lower than the bank's interest rate?

• A) Take the discount but pay after the discount period.
• B) Borrow from the bank and take the discount.
• C) Ignore the discount, pay at the end of the period.
• D) Take the discount and hope for longer payment float.

---

Definitions:

Product Costs

The total costs directly involved in manufacturing a product, including material, labor, and overhead expenses.

Period Costs

Expenses that are not directly tied to the production process and are typically accounted for as expenses in the period they are incurred.

Contribution Margin

The amount by which sales revenue exceeds variable costs, contributing to the coverage of fixed costs and profit generation.

Direct Manufacturing Cost

The total cost directly involved in the manufacturing of a product, including direct materials and direct labor but excluding overhead.