Case law on evaluatig credit requests, Other Engineering

Assignment Help:
This case has been framed in order to test the skills in evaluating a credit request and reaching a correct decision. Perluence International is large manufacturer of petroleum and rubber-based products used in a variety of commercial applications in the fields of transportation, electronics, and heavy manufacturing.In the northwestern United States, many of the Perluence products are marketed by a wholly-owned subsidiary, Bajaj Electronics Company. Operating from a headquarters and warehouse facility in San Antonio, Strand Electronics has 950 employees and handles a volume of $85 million in sales annually.About $6 million of the sales represents items manufactured by Perluence. Gupta is the credit manager at Bajaj electronics. He supervises five employees who handle credit application and collections on 4,600 accounts. The accounts range in size from $120 to $85,000. The firm sells on varied terms, with 2/10, net 30 mostly. Sales fluctuate seasonally and the average collection period tends to run 40 days. Bad-debt losses are less than 0.6 per cent of sales. Gupta is evaluating a credit application from Booth Plastics, Inc.,a wholesale supply dealer serving the oil industry. The company was founded in 1977 by Neck A. Booth and has grown steadily since that time. Bajaj Electronics is not selling any products to Booth Plastics and had no previous contact with Neck Booth. Bajaj Electronics purchased goods from Perluence International under the same terms and conditions as Perluence used when it sold to independent customers. Although Bajaj Electronics generally followed Perluence in setting its prices, the subsidiary operated independently and could adjust price levels to meet its own marketing strategies. The Perluence''s cost-accounting department estimated a 24 per cent markup as the average for items sold to Pucca Electronics. Bajaj Electronics, in turn, resold the items to yield a 17 per cent markup. It appeared that these percentages would hold on any sales to Booth Plastics. Bajaj Electronics incurred out-of pocket expenses that were not considered in calculating the 17 per cent markup on its items. For example, the contact with Booth Plastics had been made by James, the salesman who handled the Glaveston area.
James would receive a 3 per cent commission on all sales made Booth Plastics, a commission that would be paid whether or not the receivable was collected. James would, of course, be willing to assist in collecting any accounts that he had sold. In addition to the sales commission, the company would incur variable costs as a result of handling the merchandise for the new account. As a general guideline, warehousing and other administrative variable costs would run 3 per cent sales. Gupta Holmstead
approached all credit decisions in basically the same manner. First of all, he considered the potential profit from the account. James had estimated first-year sales to Booth Plastics of $65,000. Assuming that Neck Booth took the, 3 per cent discount. Bajaj Electronics would realize a 17 per cent markup on these sales since the average markup was calculated on the basis of the customer taking the discount. If Neck Booth did not take the discount, the markup would be slightly higher, as would the cost of financing the receivable for the additional period of time. In addition to the potential profit from the account, Gupta was concerned about his company''s exposure. He knew that weak customers could become bad debts at any time and therefore, required a vigorous collection effort whenever their accounts were overdue. His department probably spent three times as much money and effort managing a marginal account as compared to a strong account. He also figured that overdue and uncollected funds had to be financed by Bajaj Electronics at a rate of 18 per cent. All in all, slow -paying or marginal accounts were very costly to Bajaj Electronics. With these considerations in mind, Gupta began to review the credit application for Booth Plastics.
Question:
1. How would you judge the potential profit of Bajaj Electronics on the first year of sales to Booth Plastics and give your views to increase the profit.
2. Suggestion regarding Credit limit. Should it be approved or not, what should be the amount of credit limit that electronics give to Booth Plastics.

Related Discussions:- Case law on evaluatig credit requests

Integrated circuits, Integrated circuits: Integrated circuits, or IC's,...

Integrated circuits: Integrated circuits, or IC's, have changed the entire electronics industry. Before IC's were developed, all electronic circuits consisted of individual (d

engneering mechanics, the speed of an object at the end of 4 succesive sec...

the speed of an object at the end of 4 succesive seconds is 2o,25,3o and 35 m/sec respectvly, what is the acceleration of this object?

WAVE ANALYZERS, TELL ME THE WORKING OF BASIC WAVE ANALYZER WITH DIAGRAM

TELL ME THE WORKING OF BASIC WAVE ANALYZER WITH DIAGRAM

thermodynamics, Steam enters in the turbine at 6 MPa and 450 deg C and exp...

Steam enters in the turbine at 6 MPa and 450 deg C and expands at some intermediate pressure 60 % of steam is extracted and remainder expands to 10 kPa at this Investigate the effe

Timber, micro structure of exogenous tree

micro structure of exogenous tree

Logic gate -xor gate, 'Exclusive or' gate: The basic OR gate illustrate...

'Exclusive or' gate: The basic OR gate illustrated previously in Figure 3 was seen to include the AND operation in that its output will adopt the 1 state not only when either i

Aerofoil aerodynamics – low speed flows, We now have some idea about what m...

We now have some idea about what models are available to simulate the flow over an aerofoil, and also how to use the Hanley package to apply these methods. Keep referring to you

Microprocessor, software development cycle for 8086

software development cycle for 8086

Dsp, find IDFT of the sequence X(k)={5,0,1,-j,0,1,0,1,j,0}

find IDFT of the sequence X(k)={5,0,1,-j,0,1,0,1,j,0}

Engineering Management, what is the best Master thesis that can be done i...

what is the best Master thesis that can be done in this major ?I need suggestions regards

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd