Bulawan Coin, Inc. is considering shortening its credit period from 30 days to 20 days and believes, as a result of this change, its average collection period will decrease from 36 days to 30 days. Bad debt expenses are also expected to decrease from 1.2 percent to 0.8 percent of sales. The firm is currently selling 300,000 units but believes as a result of the change, sales will decline to 275,000 units. On 300,000 units, sales revenue is $4,200,000, variable costs total $3,300,000, and fixed costs are $300,000. The firm has a required return on similar-risk investments of 15 percent. Required: (PLEASE ANSWER 5-9 ONLY) 5. How much was the marginal profit contribution? 6. How much was the cost of the marginal investment in accounts receivable? 7. How much was the cost of the marginal bad debts?
Bulawan Coin, Inc. is considering shortening its credit period from 30 days to 20 days and believes, as a result of this change, its average collection period will decrease from 36 days to 30 days. Bad debt expenses are also expected to decrease from 1.2 percent to 0.8 percent of sales. The firm is currently selling 300,000 units but believes as a result of the change, sales will decline to 275,000 units. On 300,000 units, sales revenue is $4,200,000, variable costs total $3,300,000, and fixed costs are $300,000. The firm has a required return on similar-risk investments of 15 percent.
Required: (PLEASE ANSWER 5-9 ONLY)
5. How much was the marginal profit contribution?
6. How much was the cost of the marginal investment in accounts receivable?
7. How much was the cost of the marginal
8. How much was the cost of marginal cash discounts?
9. Will you recommend the proposal or not? Please justify.
For reference: https://www.bartleby.com/questions-and-answers/bulawan-coin-inc.-is-considering-shortening-its-credit-period-from-30-days-to-20-days-and-believes-a/b1333e75-7b0f-442c-9801-e0d14f0a4d17
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