A firm is evaluating an accounts receivable change that would increase bad debts from 2% to 5% of sales. Sales are currently 50,000 units, the selling price is $20 per unit, and the variable cost per unit is $15. As a result of the proposed change, sales are forecast to increase to 80,000 units. What are bad debts in dollars currently and under the proposed change? Calculate the cost of the marginal bad debts to the firm. C. Ignoring the additional profit contribution from increased sales, if the proposed change saves $3,500 and causes no change in the average investment in accounts receivable, would you recommend it? d. Considering all changes in costs and benefits, would you recommend the proposed change? Compare and discuss your answers in parts c and a. b. e. d.
A firm is evaluating an accounts receivable change that would increase bad debts from 2% to 5% of sales. Sales are currently 50,000 units, the selling price is $20 per unit, and the variable cost per unit is $15. As a result of the proposed change, sales are forecast to increase to 80,000 units. What are bad debts in dollars currently and under the proposed change? Calculate the cost of the marginal bad debts to the firm. C. Ignoring the additional profit contribution from increased sales, if the proposed change saves $3,500 and causes no change in the average investment in accounts receivable, would you recommend it? d. Considering all changes in costs and benefits, would you recommend the proposed change? Compare and discuss your answers in parts c and a. b. e. d.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Please Correct answer with Explanation and Do not Give solution in image format
Transcribed Image Text:A firm is evaluating an accounts receivable change that would increase bad debts from 2% to
5%
of sales. Sales are currently
50,000
units, the selling price is $20 per unit, and the variable cost per unit is $15. As a result of the proposed
change, sales are forecast to increase to
80,000
units.
a.
b.
What are bad debts in dollars currently and under the proposed change?
Calculate the cost of the marginal bad debts to the firm.
C. Ignoring the additional profit contribution from increased sales, if the proposed change saves
$3,500 and causes no change in the average investment in accounts receivable, would you recommend
it?
d.
e.
d.
Considering all changes in costs and benefits, would you reco mend the proposed change?
Compare and discuss your answers in parts c and
Question content area bottom
Part 1
a. The firm's current amount of bad debts in dollars is
$enter your response here.
(Round to the nearest dollar.)
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