Question

Conradt Connectivity Company manufactures various electrical connectors. The company’s sales budget for the first six months of the coming year is as follows. All sales are made on credit.


Conradt is planning to change its credit policies in the coming year. For the fi rst time in its history, the company is offering a 2 percent discount to customers who pay within 15 days of the invoice date. Based on industry trends, Conradt estimates that this change will result in 50 percent of credit sales being paid within the discount period; another 15 percent of sales, within the month of sale (but outside of the discount period); and another 32 percent of sales, during the month after the sale. An estimated 3 percent of sales will be uncollectible.

Required

a. Prepare Conradt's cash receipts budget for the second quarter of the coming year.
b. How much cash will Conradt sacrifice in the second quarter by offering the new discount?
c. What do you think led Conradt to offer the new discount tocustomers?


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  • CreatedFebruary 21, 2014
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