In each the following pairings, indicate which firm would probably have a longer
ID: 2741320 • Letter: I
Question
In each the following pairings, indicate which firm would probably have a longer credit period and explain your reasoning. Respond to only one pairing.
a. Firm A sells a miracle cure for baldness and Firm B sells toupees.
b. Firm A specializes in products for landlords; firm B specializes in products for renters.
c. Firm A sells to customers with an inventory turnover of 10 times; firm B sells to customers with an inventory turnover of 20 times.
d. Firm A sells fresh fruit; firm B sells canned fruit.
e. Firm A sells and installs carpeting; firm B sells rugs
Explanation / Answer
Length of Credit Period –
In each the following pairings, indicate which firm would probably have a longer credit period and explain your reasoning. Respond to only one pairing.
Firm B.This is because toupees may be used for a longer period
Firm B. This is because renters have lower incomes and they need more time to look for money to make payments. More so they have other financial commitments like paying rent
Firm A. This is because it sales inventory to customers with low movement of stock implying that they may be faced with financial constraints
Firm B. Fresh fruits cannot be stored for long and therefore payments should be made promptly to keep the business running. Because B sells canned fruits it can give a longer credit period
Firm A. Rugs are of low value and hence their credit period should be low. Since A sells products of high value, a longer credit period is appropriate.