Customer Service Chat
Get quote & make Payment
Case Let, Other Engineering
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
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.
Posted Date: 5/2/2012 11:52:19 AM | Location : United States
Ask an Expert
Case Let, Assignment Help, Ask Question on Case Let, Get Answer, Expert's Help, Case Let Discussions
Write discussion on Case Let
Your posts are moderated
Write your message here..
Finance derivative, What are the no-arbitrage lower bound, and the no-arbit...
What are the no-arbitrage lower bound, and the no-arbitrage upper bound, of the vertical spread c(k1)-c(k2)?
Is the dividend paid on common stock taxable to shareholders, Is the divide...
Is the dividend paid on common stock taxable to shareholders? The results paid on common inventory are taxed on two stages in the U.S. First at the company stage, as a results c
Need help with a financial management quiz, Would you be able to assit me w...
Would you be able to assit me with a 40 question, multiple chioice quiz today ?
Internal rate of return irr, Internal rate of return IRR In case of IRR met...
Internal rate of return IRR In case of IRR method cash flow are analyzed taking into account the magnitude and the timing. IRR is that discount rate which gives a net present value
Foundry Mechanizaation, i need assignment on this topic
i need assignment on this topic
MICROPROCESSOR, The access time of ROM using bipolar transistors is about
The access time of ROM using bipolar transistors is about
Case study, M/s XYZ Ltd manufactures a product “PLVS” at its plant at Meeru...
M/s XYZ Ltd manufactures a product “PLVS” at its plant at Meerut, the maximum capacity of which is 200 units per month. Details of raw materials which go into the making of 1 units
Eng, all projrct is correct excpet for last part it will not fire a table...
all projrct is correct excpet for last part it will not fire a table
Important techniques for compacting of metal powders, Q.6 Define powder-met...
Q.6 Define powder-metallurgy. What are various important techniques for compacting of metal powders ? Ans. Powder metallurgy is a technique of producing metal powders and mak
Flames obtained in an oxyacetylene gas welding process, Q. Describe the t...
Q. Describe the types of flames obtained in an oxyacetylene gas welding process giving the applications. There are three types of flames in the gas welding on the base of the
Accounting Assignment Help
Economics Assignment Help
Finance Assignment Help
Statistics Assignment Help
Physics Assignment Help
Chemistry Assignment Help
Math Assignment Help
Biology Assignment Help
English Assignment Help
Management Assignment Help
Engineering Assignment Help
Programming Assignment Help
Computer Science Assignment Help
Why Us ?
~24x7 hrs Support
~Quality of Work
~Time on Delivery
~Privacy of Work
Human Resource Management
Literature Review Writing Help
Follow Us |
T & C
Copyright by ExpertsMind IT Educational Pvt. Ltd.