Michael Corporation spends Php 220,000 per annum on its collection department. The company has Php 12M in credit sales. Its average collection period is 2.5 months, and the percentage of bad debts loss is 4%. The company believes that if it were to double its collection personnel, it could bring down the average collection period to 2 months and bad debt losses to 3%. The added cost is Php 180,000, bringing total expenditures to Php 400,000 annually. Is the increased effort worthwhile if the opportunity cost of funds is 20%? If it is 10%?
Michael Corporation spends Php 220,000 per annum on its collection department. The company has Php 12M in credit sales. Its average collection period is 2.5 months, and the percentage of bad debts loss is 4%. The company believes that if it were to double its collection personnel, it could bring down the average collection period to 2 months and bad debt losses to 3%. The added cost is Php 180,000, bringing total expenditures to Php 400,000 annually. Is the increased effort worthwhile if the opportunity cost of funds is 20%? If it is 10%?
Chapter18: The Management Of Accounts Receivable And Inventories
Section: Chapter Questions
Problem 10P
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- Michael Corporation spends Php 220,000 per annum on its collection department. The company has Php 12M in credit sales. Its average collection period is 2.5 months, and the percentage of
bad debts loss is 4%. The company believes that if it were to double its collection personnel, it could bring down the average collection period to 2 months and bad debt losses to 3%. The added cost is Php 180,000, bringing total expenditures to Php 400,000 annually.
Is the increased effort worthwhile if the opportunity cost of funds is 20%? If it is 10%?
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