Silicon Wafers Inc., is debating whether or not to extend credit to a particular customer. Silicon's products, primarily used in the manufacture of semiconductors, currently sell for P1,140 per unit. The variable cost is P760 per unit. The order under consideration is for 15 units today; payment is promised in 30 days. Required: a. If there is a 20 percent chance of default, should Silicon fill the order? The required return is 2 percent per month. This is a one-time sale and the customer will not buy if credit is not extended. b. What is the break-even probability in (a)? C. In general terms, how do you think your answer to (a) will be affected if the customer will purchase the merchandise for cash if the credit is refused? The cash price is P1,090 per unit.
Silicon Wafers Inc., is debating whether or not to extend credit to a particular customer. Silicon's products, primarily used in the manufacture of semiconductors, currently sell for P1,140 per unit. The variable cost is P760 per unit. The order under consideration is for 15 units today; payment is promised in 30 days. Required: a. If there is a 20 percent chance of default, should Silicon fill the order? The required return is 2 percent per month. This is a one-time sale and the customer will not buy if credit is not extended. b. What is the break-even probability in (a)? C. In general terms, how do you think your answer to (a) will be affected if the customer will purchase the merchandise for cash if the credit is refused? The cash price is P1,090 per unit.
Chapter18: The Management Of Accounts Receivable And Inventories
Section: Chapter Questions
Problem 2P
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Transcribed Image Text:Problem 10
Silicon Wafers Inc., is debating whether or not to extend credit to a particular
customer. Silicon's
Silicon's products, primarily used in the manufacture of
semiconductors, currently sell for P1,140 per unit. The variable cost is P760 per
unit. The order under consideration is for 15 units today; payment is promised in
30 days.
Required:
a.
If there is a 20 percent chance of default, should Silicon fill the order? The
required return is 2 percent per month. This is a one-time sale and the customer
will not buy if credit is not extended.
b.
What is the break-even probability in (a)?
c.
In general terms, how do you think your answer to (a) will be affected if the
customer will purchase the merchandise for cash if the credit is refused? The
cash price is P1,090 per unit.
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