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1. The petite corporation has annual credit sales...




1. The petite corporation has annual credit sales of 2million. Current expenses for the collection department are $30 000, bad debt losses are 2% and the DSO is 30 days. Pettit is considering easing its collection efforts so that collection expenses will be reduced to $22000 per year. The change is expected to increase bad debt to $2.2 million per year. Should Pettit relax collection efforts if the opportunity cost of funds is 12%, the variable cost ratio is 75% and its its marginal tax rate is 40%? All costs associated with production and credit sales are paid on the day of the sale. 2. The McCollough Company has a variable operating cost ratio of 70%, its cost of capital is 10% and current sales are $10000. All of its sales are on credit, and it currently sells on terms of net 30. Its accounts receivable balance is $1,500. McCollough is considering a new credit policy with terms of net 45. Under the new policy, sales will increase to $12,000 and accounts recievable will rise to $25000. Compute the days sales outstanding under the existing policy and the proposed policy. 3. Green Thumb Garden Centers sells 240000 bags of lawn fertilizer annually. The optimal safety stock (which is on hand innitially) is 1,200 bags. Each bag costs Green Thumb $4, inventory carrying cost are 20 percent, and the cost of placing an order with its supplier is $25. (a.) what is the economic ordering quantity (EOQ)? (B.) What is the total inventory cost at the EOQ level? 4. Morrissey Industries sells on terms of 3/10, net 30. Total sales for the year are $900,000. 40% of the customers pay on Day 10 and take discounts; the other 60% pay on average, 40 days after their purchases. What are (a.) the days of sales outstanding (DSO) and (b) the average amount of receivables (c.) What would happen to average recievables if Morrissey tightened its collection policy with the result that all non-discount customers paid on Day 30?


Paper#8772 | Written in 18-Jul-2015

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