The Sales Director of National Co. suggests that certain credit terms be modified. He estimates the following effects: 1. Sales will increase by at least 20%. 2. Accounts receivable turnover will be reduced to 8 times from the present turnover of 10 times. 3. Bad debts, now at 1% of sales will increase to 1.5%. Sales before the proposed changes is at P900,000. Variable cost ratio is 55% and desired rate of return is 20%. Fixed expenses amount to P150,000. Should the company allow the revision of its credit terms? * O Yes, because income will increase by P68,850. O No, because losses will increase by P28,000. Yes, because losses will be reduced by P78,800. O No, because income will be reduced by P13,000.

The Sales Director of National Co. suggests that certain credit terms be modified. He estimates the following effects: 1. Sales will increase by at least 20%. 2. Accounts receivable turnover will be reduced to 8 times from the present turnover of 10 times. 3. Bad debts, now at 1% of sales will increase to 1.5%. Sales before the proposed changes is at P900,000. Variable cost ratio is 55% and desired rate of return is 20%. Fixed expenses amount to P150,000. Should the company allow the revision of its credit terms? * O Yes, because income will increase by P68,850. O No, because losses will increase by P28,000. Yes, because losses will be reduced by P78,800. O No, because income will be reduced by P13,000.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter18: The Management Of Accounts Receivable And Inventories

Section: Chapter Questions

Problem 14P

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