Learning Goal 4
ST15- 3 Relaxing credit standards Regency Rug Repair Company is trying to decide whether it should relax its credit standards. The firm repairs 72,000 rugs per year at an average price of $32 each. Bad-debt expenses are 1% of sales, the average collection period is 40 days, and the variable cost per unit is $28. Regency expects that if it does relax its credit standards, the average collection period will increase to 48 days and that
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Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
- Relaxing Collection Efforts The Boyd Corporation has annual credit sales of 1.6 million. Current expenses for the collection department are 35,000, bad-debt losses are 1.5%, and the days sales outstanding is 30 days. The firm is considering easing its collection efforts such that collection expenses will be reduced to 22,000 per year. The change is expected to increase bad-debt losses to 2.5% and to increase the days sales outstanding to 45 days. In addition, sales are expected to increase to 1,625,000 per year. Should the firm relax collection efforts if the opportunity cost of funds is 16%, the variable cost ratio is 75%, and taxes are 40%?arrow_forwardProblem IV. The U Store, Inc. is the major supplier of books for the four area colleges. An income statement for the first quarter of 2020 is presented below: Sales 800,000 Cost of Goods Sold 560,000 Gross Margin 240,000 Less: Operating Expenses Selling Expenses 105,000 Administrative Expenses 105,000 210,000 Net Income 30,000 On average, a book sells for P40. Variable selling expenses are P3 per book; the remaining selling expenses are fixed. The variable administrative expenses are 5% of sales; the remainder is fixed. 3. The cost formula for operating expenses with “x” equal the number of books sold is:arrow_forwardProblem IV. The U Store, Inc. is the major supplier of books for the four area colleges. An income statement for the first quarter of 2020 is presented below: Sales 800,000 Cost of Goods Sold 560,000 Gross Margin 240,000 Less: Operating Expenses Selling Expenses 105,000 Administrative Expenses 105,000 210,000 Net Income 30,000 On average, a book sells for P40. Variable selling expenses are P3 per book; the remaining selling expenses are fixed. The variable administrative expenses are 5% of sales; the remainder is fixed. 2. The net income computed using the contribution approach for the first quarter of 2020 is:arrow_forward
- PROBLEM 1 The School of Management and Accountancy is planning to begin an online MSA (Master of Science in Accountancy) program. The initial start-up costs for computing equipment, facilities, course development, and staff recruitment and development are P350,000. The school plans to charge tuition of P18,000 per student per year. However, the university administration will charge the school P12,000 per student for the first 100 students enrolled each year for administrative costs and its share of the tuition payments. Required: PROVIDE A DETAILED EXCEL SOLUTION a. How many students does the school need to enroll in the first year to break even? b. If the school can enroll 75 students the first year, how much profit will it make? c. The school believes it can increase tuition to P24,000, but doing so would reduce enrollment to 35. Should the school consider doing this?arrow_forwardEA1. Garrison Boutique, a small novelty store, just spent $4,000 on a new software program that will help in organizing its inventory. Due to the steep learning curve required to use the new software, Garrison must decide between hiring two part-time college students or one full-time employee. Each college student would work 20 hours per week and would earn $15 per hour. The full-time employee would work 40 hours per week and would earn $15 per hour plus the equivalent of $2 per hour in benefits. Employees are given two polo shirts to wear as their uniform. The polo-shirts cost Garrison $10 each. What are the opportunity costs for Garrison?arrow_forward7-23A Compute breakeven and project income (Learning Objectives 1 & 2)Grover’s Steel Parts produces parts for the automobile industry. The company hasmonthly fixed expenses of $630,000 and a contribution margin of 70% of revenues.Requirements1. Compute Grover’s Steel Parts’ monthly breakeven sales in dollars.2. Use the contribution margin ratio to project operating income (or loss) if revenues are$520,000 and if they are $1,010,000.3. Do the results in Requirement 2 make sense given the breakeven sales you computedin Requirement 1? Explain.arrow_forward
- Student question MBI is a manufacturer of personal computers. All its personal computers use a 3.5-inch high-density floppy disk drive which it purchases from Ynos. MBI operates its factory 52 weeks per year, which requires assembling 100 of these floppy disk drives into computers per week. MBI’s annual holding cost rate is 20 percent of the value (based on purchase cost) of the inventory. Regardless of order size, the administrative cost of placing an order with Ynos has been estimated to be $50. A quantity discount is offered by Ynos for large orders as shown below, where the price for each category applies to every disk drive purchased. Determine the optimal order quantity according to the EOQ model with quantity discounts. What is the resulting total cost per year? What is the resulting total cost per year?arrow_forward3. A safety manager recommends spending $3,000 on an initiative to reduce accidents in an organization. Assume the company has a 3% profit margin. The manager believes the investment will take three years to recoup the expenses. What is the present value of the investment over the three-year period?arrow_forwardQ1: Shannon’s brewery currently boasts a customer base of 1,750 customers that frequent the brewhouse on average twice per month and spend $34 per visit. Shannon ‘s current variable cost of goods sold is 50% of sales. The customer retention rate per month is 0.83% , based on data collected from its website and an analysis of credit card receipts. Its current cost of capital for borrowing and investing is about 12% per year, or 1% per month. What is Shannon’s approximate CLV for its average customer? Compute your answer to the nearest penny.arrow_forward
- 1. Gxsport is a small business manufactures sportswear focusing on tracksuits. Gxsportperform very well in 2021 with yearly sales amounting to RM630,000, equivalent to 12,600pieces sold. For the 1st quarter of 2022, the sales are predicted to increase by 7% ascompared to 2021’s sales due to the raised of awareness for a healthy lifestyle.The price of the tracksuit is RM50 per piece. The labour rate is RM7 per hour and eachpiece of tracksuit requires 0.4 hours to make. Manufacturing overheads are charges atRM1.50 per piece. The inventory is expected to have a balance of 500 pieces of tracksuitsas at 1st January 2022 and increase by 10% as at 31st March 2022. 1. Calculate the production budget (in unit) for the 1st quarter 2022 (1st January to 31st March2022).arrow_forwardEvaluating Credit Policy Solar Engines manufactures solar engines for tractor -trailers. Given the fuel savings available, new orders for 125 units have been made by customers requesting credit. The variable cost is $14, 500 per unit, and the credit price is $16, 100 each. Credit is extended for one period. The required return is 1.9 percent per period. If Solar Engines extends credit it expects that 30 percent of the customers will be repeat customers and place the same order every period forever and the remaining customers wil be one-time orders. Should credit be extended?arrow_forwardJoyful Journeys Music School provides private music lessons for elementary students. Its operating costs are as follows: Rent on facilities $2,200 per month Advertising $274 per month Instrument Rent $750 per month Teaching Instruction $40 per student Books $5 per student Other Costs $3 per student Joyful Journeys charges $100 per student per month. Determine the company’s break-even point in (1) number of students taught per month and (2) dollars. (1) Break even in number of students taught per month 62 (2) Break even in dollars $6,200 Joyful Journeys has just received notice that the rent on their facilities will be increasing by $500 per month and the instrument rent will also be increasing $20 per month. (1) Determine the company’s break-even point in the number of students taught per month based on the new information. (2) Determine the amount to charge per student assuming that Joyful Journeys does not increase the number…arrow_forward
- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning