Trade Credit Can Be Separated into Two Components: Free Trade

question 101

True/False

Trade credit can be separated into two components: free trade credit, which involves credit received after the discount period ends, and costly trade credit, which is the cost of discounts not taken.

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Definitions:

Variable Expenses

Costs that fluctuate in direct proportion to changes in activity level or volume, such as raw materials and direct labor costs.

Contribution Margin Ratio

The contribution margin ratio is a financial metric indicating the proportion of sales revenue that exceeds variable costs, expressed as a percentage.

Monthly Fixed Expenses

Regular expenses that do not vary in amount and are paid on a monthly basis.

Contribution Margin Ratio

The proportion of sales revenue that exceeds variable costs, typically expressed as a percentage, indicating how much contributes to covering fixed costs and generating profits.