(B) Receivables: Credit Terms: ABC sold boxes of candles at P1,000 each. Each box costs P750. Daily sales total 500 boxes over its 250-work day year. All sales are on credit. For the coming year, it plans to accept customers who have less desirable credit ratings. Sales are expected to increase by 10%. Average collection period will increase from 40 days to 50 days. Bad debts will increase from 1% to 3% of sales. Operating expenses will stay the same. For profitability analysis, ABC uses an 8% effective interest rate. Compute for the required by filling up the supporting table. Required: How much would the following be assuming that ABC proceeds with its plan to accept the new market group? 7. Increase in gross profit Increase in receivables carrying cost 9. Increase in bad debts 8. 10. Net advantage or disadvantage of the plan
(B) Receivables: Credit Terms: ABC sold boxes of candles at P1,000 each. Each box costs P750. Daily sales total 500 boxes over its 250-work day year. All sales are on credit. For the coming year, it plans to accept customers who have less desirable credit ratings. Sales are expected to increase by 10%. Average collection period will increase from 40 days to 50 days. Bad debts will increase from 1% to 3% of sales. Operating expenses will stay the same. For profitability analysis, ABC uses an 8% effective interest rate. Compute for the required by filling up the supporting table. Required: How much would the following be assuming that ABC proceeds with its plan to accept the new market group? 7. Increase in gross profit Increase in receivables carrying cost 9. Increase in bad debts 8. 10. Net advantage or disadvantage of the plan
Chapter18: The Management Of Accounts Receivable And Inventories
Section: Chapter Questions
Problem 6P
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