The Sandbox Company is planning to increase its level of collection expenditures form the current P250,000 to P400,000, on credit sales of P24,000,000. This move is expected to accelerate payments and increase turnover of receivables from 8 to 12 times and cut bad debts from two percent to one percent of credit sales. The opportunity cost of funds is 12 percent. The company uses a 360-day year in planning and controlling.

Required: 

Calculate the following (show your solution):

1. Receivables turnover before and after the change in the collection policy.

2. Average receivable balance before and after the change in collection policy.

 3. Net advantage or disadvantage of the new collection policy

Answer rating: 100% (QA)

Answer Step 1 The receivable turnover ratio is computed by dividing the net c... View the full answer