Problem $7-33($Algo$)$

OB$1$ Sabres Ltd$.$ has determined that product sales are not what they could be because they have unused capacity. As a result, the

company is considering adjusting its marketing strategy. At present, all sales to distributors are on a cash basis, but the competition

offers credit terms. Similar credit terms for OB$1$ Sabres have been suggested. Research suggests that sales in the upcoming year

would jump from $$4\mathrm{.}38$ million annually to $$5\mathrm{.}66$ million with credit terms of $3//10,$ net $30.$ Furthermore, research estimates that $75$

percent of the customers would take the discount and the remainder would pay on average on the $30$th day. Inventory turnover would

remain at $12$ times a year. Cost of goods sold $($variable costs$)$ are $75$ percent of gross sales. Bad debts are estimated to be $0\mathrm{.}75$ percent

of credit sales. Credit department expenses would be $$51,600$ per year plus the salary of $2$ individuals at $$36,600$ per year each. One

of the staff would be reassigned from another division without affecting costs or productivity as that individual is currently redundant in

that division. Marketing expenses are $4$ percent of gross sales. Bank financing of working capital requirements is at $11$ percent.

a$.$ Should OB$1$ Sabres Ltd$.$ adopt the proposed policy?

Yes

No

b$.$ Show the calculations.

Note: Use $365$ days in a year. Do not leave any empty spaces; input a $"$O$"$ wherever required. Round the answers to the

nearest whole dollar. Negative answers and the values to be deducted should be indicated by a minus sign. Enter answers in

whole dollar, not in million. Do not round intermediate calculation.

Delta Sales

Present policy

New policy