ABC sold boxes of candles at P1,000 each. For each box, ABC incurs variable cost of P750.
Question:
ABC sold boxes of candles at P1,000 each. For each box, ABC incurs variable cost of P750. Daily sales total 500 boxes over its 250‐work day year. All sales are on credit. For the coming year, it plans to accept customers who have less desirable credit ratings. Sales are expected to increase by 10%. Average collection period will increase from 40 days to 50 days. Bad debts will increase from 1% to 3% of sales. Fixed expenses will stay the same. For profitability analysis, ABC uses an 8% effective interest rate
Required: If ABC proceeds with its plan to accept the new market group, compute for the following
1. Increase in contribution margin
2. Increase in receivables carrying cost
3. Increase in bad debts
4. Net advantage or disadvantage of the plan
Expert Answer:
Average collection period is the time taken by the receivables to repay on an average A... View the full answer
