Kilang Enterprise is considering changing its credit terms from net 30 to 2/10 net 30. The...

 

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Kilang Enterprise is considering changing its credit terms from net 30 to 2/10 net 30. The current average collection period is 40 days. The firm expects this change to result in an average collection period of 25 days. Current sales is 1,100 units at a price of RM3,000. The variable cost per unit is RM2,300. The firm expects 80% of its customers to take the 2% discount, resulting in an increase in sales of 50 units. Bad debt percentage is expected to be the same. The opportunity cost of funds invested in accounts receivable is 14%. Required: a. What is the additional profit from increase in sales? b. Calculate the cost of additional bad debt and investment in account receivables c. Calculate the overall benefit d. Should Khalid offer the proposed cash discount? Kilang Enterprise is considering changing its credit terms from net 30 to 2/10 net 30. The current average collection period is 40 days. The firm expects this change to result in an average collection period of 25 days. Current sales is 1,100 units at a price of RM3,000. The variable cost per unit is RM2,300. The firm expects 80% of its customers to take the 2% discount, resulting in an increase in sales of 50 units. Bad debt percentage is expected to be the same. The opportunity cost of funds invested in accounts receivable is 14%. Required: a. What is the additional profit from increase in sales? b. Calculate the cost of additional bad debt and investment in account receivables c. Calculate the overall benefit d. Should Khalid offer the proposed cash discount?

Answer rating: 100% (QA)

a a The additional profit from the increase in sales would be 50 units x RM 3 000 per unit x ... View the full answer