The Sales Director of National Co. suggests that certain credit terms be modified. He estimates the following effects: 1. Sales will increase by at least 20%. 2. Accounts receivable turnover will be reduced to 8 times from the present turnover of 10 times. 3. Bad debts, now at 1% of sales will increase to 1.5%. Sales before the proposed changes is at P900,000. Variable cost ratio is 55% and desired rate of return is 20%. Fixed expenses amount to P150,000. Should the company allow the revision of its credit terms? * O Yes, because income will increase by P68,850. O No, because losses will increase by P28,000. Yes, because losses will be reduced by P78,800. O No, because income will be reduced by P13,000.
The Sales Director of National Co. suggests that certain credit terms be modified. He estimates the following effects: 1. Sales will increase by at least 20%. 2. Accounts receivable turnover will be reduced to 8 times from the present turnover of 10 times. 3. Bad debts, now at 1% of sales will increase to 1.5%. Sales before the proposed changes is at P900,000. Variable cost ratio is 55% and desired rate of return is 20%. Fixed expenses amount to P150,000. Should the company allow the revision of its credit terms? * O Yes, because income will increase by P68,850. O No, because losses will increase by P28,000. Yes, because losses will be reduced by P78,800. O No, because income will be reduced by P13,000.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
3
Transcribed Image Text:The Sales Director of National Co. suggests that certain credit terms be modified. He
estimates the following effects:
1. Sales will increase by at least 20%.
2. Accounts receivable turnover will be reduced to 8 times from the present turnover of 10
times.
3. Bad debts, now at 1% of sales will increase to 1.5%. Sales before the proposed changes is
at P900,000. Variable cost ratio is 55% and desired rate of return is 20%. Fixed expenses
amount to P150,000.
Should the company allow the revision of its credit terms? *
Yes, because income will increase by P68,850.
No, because losses will increase by P28,000.
O Yes, because losses will be reduced by P78,800.
O No, because income will be reduced by P13,000.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education