assignment:

$1.$ Sales occur evenly throughout the year.

$2.$ The firm is currently operating under$-$capacity.

$3.$ Opportunity cost of Inventory Investment$=$

Change in Annual Sales x COGS $\%$ Annual Inventory Turnover

X r

Karen$$s Canoes

Determine the expected change in before$-$tax profit for the proposed change in credit standards. Prepare the income statements in total, not per unit. The following information should be used in your analysis.

Karen$$s Canoes is considering relaxing its credit standards to encourage more sales. As a result, sales are expected to increase $15\%$ from $300$ canoes per year to $345$ canoes per year. The average collection period is expected to increase to $40$ days from $30$ days and bad debts are expected to double the current level $($as a $\%$ of sales$).$ To support the higher sales level, an increase in the level of inventory will be necessary. The firm$$s required return on investment is $6\%$ and their annual inventory turnover is $3$ times. Their COGS $\%$ is $58\mathrm{.}33\%.$

The current standard cost data is shown below.

Sales Price $($per canoe$)300$

Variable Costs $($per canoe$)$:

Material $100$

Labor $70$

Overhead $5$

Selling Expense $15$

Collection Expense $5$

Total VC Costs $($per canoe$)195$

Bad Debts $2\%$ of sales

I attached the template for the assignment