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

The owner of Patterson is considering whether to accept credit cards (VISA and MasterCard) instead of granting credit to customers. If Patterson were to accept credit cards, the owner expects total sales to increase by 10% but cash sales to remain unchanged. Further, if Patterson were to accept credit cards, the business can save $9,000 on other expenses, but the credit card processors charge 3% on credit card sales.

Requirement

Should Patterson Shirt Company start accepting credit cards? Show the computations of net income under the present plan and under the credit card plan. (Ignore estimated sales returns and refunds for this exercise.)

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Credit Cash Total Sales. . Cost of goods sold.. Uncollectible-account expense. Other expenses. $2.50,000 125,000 $2.50,000 125,000 18,000 $500,000 250,000 18,000 165,000 82,500 82,500