Example of credit period, Managerial Accounting

Assignment Help:

M/s ABC has an existing sales of Rs.50 lakhs and permits a credit period of 30 days to its customers.  The firm cost of capital is 10% and the ratio of variable cost to sales is 85. The firm is contemplating on rising the credit period to 60 days that would result in raised sales of Rs.5 lakhs.  The bad debts on raised sales are expected to be 8%.  The tax rate for M/s ABC is 40 percent. Must the firm extend the credit period?

Solution

? I = (ACPn - ACP0) [S0/360] + V(ACPn)( ?S/360)

? I = (60 - 30) [50/360] + 8.5 × 60 × 5/360

? I = (30) × 50/360 + .708333

?I = 4.8749997 × 1, 00,000

= 4, 87,500

= 4, 874,99.9

 ?NP = [ ?S (1 - V ) - ? Sbn ] (1 - t ) - k?I

 = [5 (015 ) - 5 × .08 ] (1 - 04 ) - .10 × 4,87 ,500

=  [.75 - .4] (.6) - 4.875000

= (.35 ) (-6) - .48750

= (.21 - .48750 ) × 1,00 ,000

= - 27 ,750

The raise in credit period results in a negative net profit thus the credit period must not be extended.


Related Discussions:- Example of credit period

Exercises and Problems, Exercises 2-1, 2-2, 2-3, 2-4 Problem 2-14 I didn’t...

Exercises 2-1, 2-2, 2-3, 2-4 Problem 2-14 I didn’t write every question down out of the book just questions 2-1, and 2-2. Exercise 2-1 classifying manufacturing cost. Your boat,

Intro to Managerial Accounting, I don''t know how to do a variable income s...

I don''t know how to do a variable income statement. Here is my assignment: The Used Books Company is a small online retailer operating out of a garage apartment. The owner buys

Cindy, School problem is asking to calculate the work in progress inventory...

School problem is asking to calculate the work in progress inventory for the beginning of a month without providing previous month data.

Model construction, Model Construction The success of a simulation exer...

Model Construction The success of a simulation exercise is related to the predictive quality of the underlying model, so that considerable care should be taken with model const

Determine interest expense for company, Answer each of the following indepe...

Answer each of the following independent questions in the space provided on page 11. Round all computations to the nearest dollar. a) Company A deposited $15,000 in a savings ac

Difference between marginal costing and absorption costing, Question: A...

Question: A friend of yours is revising for his examination in management accounting and needs some help from you. He asks you the following questions. Write brief notes on eac

Types of games, Types of games Four basic ways in which competitive sit...

Types of games Four basic ways in which competitive situations (or games) can be classified are: (a) Number of Competitors: In game theory a competitor is characteriz

Selective inventory management, Selective Inventory Management The inve...

Selective Inventory Management The inventory of an industrial firm generally comprises thousands of items with diverse prices, usage and lead time, as well as procurement and/o

Incremental budgeting , Incremental budgeting This is used to describe...

Incremental budgeting This is used to describe an incremental cost approach to budgeting where the next period budget is based on the current year’s results plus an extra amou

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