What Is the Effective Cost of Credit Terms of 3/5

question 16

Multiple Choice

What is the effective cost of credit terms of 3/5 net 45 if the firm stretches the accounts payable to 60 days?

• A) 12.9%
• B) 35.6%
• C) 39.9%
• D) 22.4%

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Definitions:

Overhead Costs

Indirect costs that cannot be directly attributed to specific products or services, such as utilities, rent, and managerial salaries.

Decision-making Model

A structured approach to making choices among alternatives, often involving steps such as problem identification, alternative generation, and evaluation.

Special Order

A one-time customer order for a product or service, often requiring a unique set of specifications or considerations outside regular offerings.

Idle Capacity

Unused or underused production capability, which occurs when a business has more resources available than is required to maintain its current level of production.