The manager of Rob’s Shoe Store has been congratulated by her division manager for almost completely eliminating all bad debts. She instituted a policy of conducting extensive credit checks on all prospective credit customers and, consequently,rejects most applications.The cost of each credit report is $50 and the store’s profits have declined significantly since she adopted this policy.

Required

a. Identify the circumstances under which this might be an acceptable policy.

Under what circumstances might this be an unwise or unacceptable policy?

b. The manager of Rob’s Shoe Store is considering conducting her own credit checks and preparing her own credit reports in order to avoid the $50 cost of credit reports on each prospective credit customer.Why might this not be a cost-effective practice?

c. Why would the manager of Rob’s Shoe Store want to have large inventories on hand? Why would her division manager want to curtail these desires?

Could a firm ever have too much inventory? If so, what undesirable consequences might occur?