Ripley Shirt Company sells on credit and manages its own receivables. Average experience for the past three years has been the following:

Jack Rivers, the owner, is considering whether to accept bankcards (VISA, MasterCard). Rivers expects total sales to increase by 12% but cash sales to remain unchanged. If Rivers switches to bankcards, the business can save $10,000 on other expenses, but VISA and MasterCard charge 2% on bankcard sales. Rivers figures that the increase in sales will be due to the increased volume of bankcard sales.
Requirement
1. Should Ripley Shirt Company start selling on bankcards? Show the computations of net income under the present plan and under the bankcard plan. (Ignore estimated sales returns and refunds for this exercise.)

Transcribed Image Text:

Cash Credit Total Sales $350,000$350,000 $700,000 20,000 20,000 89,000 178,000 Other expenses... 89,000