Please see attached question. Galenic Inc. is a wholesaler for a range of phamaceutical products. Before deductingany losses from bad debts, Galenic operates on a profit margin of 6%. For a long timethe firm has employed a numerical credit-scoring system based on a small number ofkey ratios. This has resulted in a bad debt ratio of 1.00%.Galenic has recently commissioned a detailed statistical study of the payment record ofits customers over the past 6 years and, after considerable experimentation, hasidentified five variables that could form the basis of a new credit-scoring system. On theevidence of the past 8 years, Galenic calculates that for every 10,000 accounts it wouldhave experienced the following default rates:Number of AccountsCredit Score under Proposed SystemDefaultingPaying9,090TotalBetter than 80709,160Worse than 8030810840Total1009,90010,000By refusing credit to firms with a poor credit score (worse than 80), Galeniccalculates that it would reduce its bad debt ratio to 70 /9, 160, or just under0.70%. While this may not seem like a big deal, Galenic's credit managerreasons that this is equivalent to a decrease of one-fifth in the bad debt ratioand would result in a significant improvement in the profit margin.Answer preferably in Excel please.1. What is Galenic's current profit margin, allowing for bad debts?2. Assuming that the firm's estimates of default rates are right, what wouldthe profit per $100 of original sales be under the new credit-scoringsystem?

Given, Profit margin = 6% Bad debt ratio = 1% Reduce bad debt ratio to 70 / 9,160

Galenic Inc. is a wholesaler for a range of phamaceutical products. Before deducting any losses from bad debts, Galenic operates on a profit margin of 6%. For a long time the firm has employed a numerical credit-scoring system based on a small number of key ratios. This has resulted in a bad debt ratio of 1.00%. Galenic has recently commissioned a detailed statistical study of the payment record of its customers over the past 6 years and, after considerable experimentation, has identified five variables that could form the basis of a new credit-scoring system. On the evidence of the past 8 years, Galenic calculates that for every 10,000 accounts it would have experienced the following default rates: Number of Accounts Paying 9,090 Credit Score under Proposed System Defaulting Total 9,160 Better than 80 70 Worse than 80 30 810 840 Total 100 9,900 10,000

Galenic Inc. is a wholesaler for a range of phamaceutical products. Before deducting any losses from bad debts, Galenic operates on a profit margin of 6%. For a long time the firm has employed a numerical credit-scoring system based on a small number of key ratios. This has resulted in a bad debt ratio of 1.00%. Galenic has recently commissioned a detailed statistical study of the payment record of its customers over the past 6 years and, after considerable experimentation, has identified five variables that could form the basis of a new credit-scoring system. On the evidence of the past 8 years, Galenic calculates that for every 10,000 accounts it would have experienced the following default rates: Number of Accounts Paying 9,090 Credit Score under Proposed System Defaulting Total 9,160 Better than 80 70 Worse than 80 30 810 840 Total 100 9,900 10,000

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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