Accounts Receivable Problem in Units: Credit Standards eased

Variable Present Situation Expected Proposed Results

Quantity of a given Product $50005500$ units

Price per unit $$80$

Average Variable Cost $($AVC$)$ $$50$

Average Fixed Cost $$10$

Average Cost $$60$

Notes Payable Interest Rate $9\%$

Days$$ of Sales Outstanding $40$ days $45$ days

Bad Debts $3\%3\mathrm{.}9\%$

Discount $2\%2\%$

Participation rate with discount $90\%80\%$

Collection Cost $5\%5\mathrm{.}5\%$

Steps:

Step $1$: Additional Profit$/$Loss caused by the change in Credit Sales:

Step $2$: Additional Savings$/$Costs associated with Accounts Receivable:

Step $3$: Additional Savings$/$Costs associated with Bad Debts:

Step $4$: Additional Savings$/$Costs associated with Credit Terms:

Step $5$: Additional Savings$/$ Cost associated with Collection Costs

Step $6$: Decision