Saxaphone Ltd has annual credit sales of $87 million and 4 percent of the value of...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Saxaphone Ltd has annual credit sales of $87 million and 4 percent of the value of these sales have to be written off as bad debt. Currently Saxaphone's credit terms are 4/15 net 30; and 40 percent of the non-defaulting credit customers take advantage of the discount. A further 40 percent of non- defaulters pay on time and the remaining 20 percent of non-defaulters pay 15 days late. Saxaphone Ltd is considering changing its credit terms to 2/10, net 30 with a tightening of credit policy. It is expected that 25 percent of non-defaulting credit customers will take advantage of the changed discount, but that the percentage of non-defaulting customers paying on time without collecting the discount will rise to 70 while 5 percent will now pay 15 days late. The change should decrease credit sales to S$85 million per year, but it is also expected to decrease bad debts to 2 per cent of this total credit sales figure. The existing administrative cost of pursuing slow payers is expected to increase from the existing $200,000 to $300,000. Saxaphone's opportunity cost of funds is 10 percent, its variable cost ratio is 70% and its average tax rate is 28 percent. Where appropriate, use a 360-day year. Required: (a) Calculate the days sales outstanding (DSO) for the old and new policies (4 marks) (b) Calculate the discount expense for the old and new policies (2 marks) (c) Calculate the cost of carrying accounts receivable for both policies (3 marks) (d) Calculate the bad debt losses for the old and new policies (2 marks) Calculate the percentage change in forecasted profit that shifting from the old to the new policy will bring about. (Please be accurate to these decimal places: xx.Xx% or 0.xxx) (3 marks) (e) (1) Keeping the values of all other variables unchanged from your calculation in part (e), what would be the percentage change in forecasted profit from the old policy, if everything in the new policy was adopted but for one item. This item is the change in collection expenses. Instead of $300,000, let the new collection expense that is adopted be $400,000. (2 marks) The Doubling of collection expenses to $400,000 will impact other figures stated in the (g) proposed new policy (which were based, where relevant, on a rise in collection expenses to $300,000 only). Please name two variables that are impacted, suggest a likely new value for each, and explain how, in words, they would impact the percentage change between the old policy and the new policy. (NOTE. Ne compuatian a saquired in this quention) Saxaphone Ltd has annual credit sales of $87 million and 4 percent of the value of these sales have to be written off as bad debt. Currently Saxaphone's credit terms are 4/15 net 30; and 40 percent of the non-defaulting credit customers take advantage of the discount. A further 40 percent of non- defaulters pay on time and the remaining 20 percent of non-defaulters pay 15 days late. Saxaphone Ltd is considering changing its credit terms to 2/10, net 30 with a tightening of credit policy. It is expected that 25 percent of non-defaulting credit customers will take advantage of the changed discount, but that the percentage of non-defaulting customers paying on time without collecting the discount will rise to 70 while 5 percent will now pay 15 days late. The change should decrease credit sales to S$85 million per year, but it is also expected to decrease bad debts to 2 per cent of this total credit sales figure. The existing administrative cost of pursuing slow payers is expected to increase from the existing $200,000 to $300,000. Saxaphone's opportunity cost of funds is 10 percent, its variable cost ratio is 70% and its average tax rate is 28 percent. Where appropriate, use a 360-day year. Required: (a) Calculate the days sales outstanding (DSO) for the old and new policies (4 marks) (b) Calculate the discount expense for the old and new policies (2 marks) (c) Calculate the cost of carrying accounts receivable for both policies (3 marks) (d) Calculate the bad debt losses for the old and new policies (2 marks) Calculate the percentage change in forecasted profit that shifting from the old to the new policy will bring about. (Please be accurate to these decimal places: xx.Xx% or 0.xxx) (3 marks) (e) (1) Keeping the values of all other variables unchanged from your calculation in part (e), what would be the percentage change in forecasted profit from the old policy, if everything in the new policy was adopted but for one item. This item is the change in collection expenses. Instead of $300,000, let the new collection expense that is adopted be $400,000. (2 marks) The Doubling of collection expenses to $400,000 will impact other figures stated in the (g) proposed new policy (which were based, where relevant, on a rise in collection expenses to $300,000 only). Please name two variables that are impacted, suggest a likely new value for each, and explain how, in words, they would impact the percentage change between the old policy and the new policy. (NOTE. Ne compuatian a saquired in this quention)
Expert Answer:
Answer rating: 100% (QA)
Answer Explanation In New Policy Old Policy Particulars AExpected Profit aCred... View the full answer
Related Book For
Accounting What the Numbers Mean
ISBN: 978-0073527062
9th Edition
Authors: David H. Marshall, Wayne W. McManus, Daniel F. Viele,
Posted Date:
Students also viewed these general management questions
-
A construction company is considering changing its depreciation from the MACRS method to the historical SL method for a general purpose hauling truck. The cost basis of the truck is $100,000, and the...
-
A manufacturer is considering changing its process in order to reduce pollution emissions. Production will remain the same. The current process has an annual operating cost of $850,000 and an annual...
-
The Pettit Corporation has annual credit sales of $2 million. Current expenses for the collection department are $30,000, bad debt losses are 2 percent, and the days sales outstanding is 30 days....
-
Show that the sum of the squares of the distances from a point P = (c, d) to n fixed points (a 1 , b 1 ), . . . ,(a n , b n ) is minimized when c is the average of the x-coordinates a i and d is the...
-
A calendar year S corporation reports an ordinary loss of $80,000 and a capital loss of $20,000. Mei Freiberg owns 30% of the corporate stock and holds a $24,000 basis in the stock. Determine the...
-
Alexis Kunselman, president of Pharsalia Electronics (PE), is concerned about the prospects of one of its major products. The president has been reviewing a marketing report with Jeff Keller,...
-
If the Simplico mine is solved with all parameters remaining the same except that \(u=1.2\) is changed to \(u=1.3\), the value of the lease remains unchanged to within three decimal places. Indeed,...
-
Process further or sell, byproduct. (CMA, adapted) Newcastle Mining Company (NMC) mines coal, puts it through a one-step crushing process, and loads the bulk raw coal onto river barges for shipment...
-
How do servant leadership practices foster a culture of empowerment and innovation within hierarchical structures, particularly in knowledge-intensive industries ?
-
A probability plot of 66 yr of peak discharges for the Kentucky River near Salvisa, Kentucky, is shown in Fig. P3-19 (a) What probability distribution is being used? (b) What are the mean and...
-
A contractor agree to a unit price contract to produce A for $50 per unit product B $150 per unit, and product C for $375 to add 30% for overhead and profit. how much should the contractor be Paid...
-
Discuss autonomous & induced inventions. What are the various learning experiences in the light of these inventions?
-
Explain how our embedded knowledge about our environment impacts how we interact with it. Based on your experiment and research, what might the results help us understand about the attention of...
-
Suppose The Pancake House's preferred stock pays an annual dividend of $4.29 per share. How much are you willing to pay for one share if you require a 9% rate of return? (Round your answer to two...
-
How do historical and cross-cultural comparisons of deviance offer insights into the fluidity and contextual nature of normative boundaries and social sanctions ?
-
Thinking of Social Factors That Contribute to Perpetuate Addiction in Women, What are some potential applications for your research? In other words, what are some ways that your research could be...
-
Given the following code: try: num= int(input ("Enter a number between 1 and 10")) if num < 1 or num > 10: raise Exception ("Enter a number between 1 and 10") except ValueError: print("Input must be...
-
Huntingdon Capital Corp. is a competitor of Plazacorp and First Capital Realty. Huntingdon reported the following selected information (in millions):...
-
Charlies Furniture Store has been in business for several years. The firms owners have described the store as a high-price, high-service operation that provides lots of assistance to its customers....
-
Assume that the current ratio for Arch Company is 2.0, its acid-test ratio is 1.5, and its working capital is $300,000. Answer each of the following questions independently , always referring to the...
-
Galvaset Industries manufactures and sells custom-made windows. Its job costing system was designed using an activity-based costing approach. Direct materials and direct labor costs are accumulated...
-
The von Neumann entropy satisfies a further inequality among three systems called strong subadditivity. \({ }^{20}\) As with subadditivity, strong subadditivity is only a property of the von Neumann...
-
We had stated in this chapter that the general Rnyi entropies do not satisfy subadditivity; only the von Neumann entropy does. In Example 12.2 , we constructed an explicit counterexample for the Rnyi...
-
In our analysis of hydrogen in Chap. 9, we discussed the period of recombination, the time in the history of the universe at which protons and electrons became bound and formed neutral hydrogen. We...
Study smarter with the SolutionInn App