Cash Discount Terms of 2/10, Net 30 on an Invoice

question 168

Multiple Choice

Cash discount terms of 2/10, net 30 on an invoice would-in effect-amount to borrowing at an annual interest rate of about ________ percent if the buyer did not pay the invoice for 30 days.

• A) 10
• B) 30
• C) 18
• D) 12
• E) 36

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Definitions:

Allocation Base

It's a measure used to distribute indirect costs to different cost objects, such as products or services.

Departmental Cost Pools

Aggregations of all costs related to a specific department within a company, used in allocating costs to products or services.

Overhead Allocation Rates

A rate used to distribute overhead costs to products or services based on a predetermined formula, such as the amount of direct labor hours or machine hours used.

Departmental Overhead Rates

The allocation of indirect costs to specific departments based on relevant activity bases, to accurately reflect the costs incurred by each department.