%, collections within the discount period is 40% and the average age will be 22 days. The variable cost rate is 60% while the effective interest rate that ABC uses for forecasting is 8%. Using the 360-day year, how much is the net benefit or cost of

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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ABC is deciding to give a cash discount of 1% if the customers pay on the tenth day. It originally offers a credit term of n/30. Without the cash discount, credit sales would be P6750000 with an average age of inventory of 27 days. With the cash discount, credit sales are forecasted to increase by15%, collections within the discount period is 40% and the average age will be 22 days. The variable cost rate is 60% while the effective interest rate that ABC uses for forecasting is 8%. Using the 360-day year, how much is the net benefit or cost of the new policy?

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