Example of credit standards, Managerial Accounting

Assignment Help:

The current sales of M/s ABC are Rs.100 lakhs. Through relaxing the credit standards the firm can produce additional sales of Rs.15 lakhs on that bad debt losses would be 10 percent.  The variable cost for the firm is, 80 percent average collection period ACP is 40 days and post tax cost of funds is 10 % and the tax rate applicable to the firm is 40%. Determine whether the firm must relax credit standards or not?

Solution:

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

?   NP = [15 (1-.80) - 15 × .1] (1-.4) -.10 × (15/360)  × 40 ×.80

= [3 -1.5] (.6) -.1333

=.9 -.1333

=.7667 × 1,00,000

=76,667

As the impact of change in credit standards outcomes in a positive change in total profits thus the proposed change must be accepted.


Related Discussions:- Example of credit standards

Activity ratio, Accounting ratios that determine a firm's ability to conver...

Accounting ratios that determine a firm's ability to convert various accounts within their balance sheets into sales or cash. Companies will usually try to shift their productio

Operating cycle method, Operating Cycle Method In this way, total opera...

Operating Cycle Method In this way, total operating expenses for a period are divided via the number of operating cycles in the relevant period to compute the cash need for wor

What are the stages in the performance budgeting, Stages in the performance...

Stages in the performance budgeting The stages in the performance budgeting is enumerated as follows: 1) Establishment of goals objectives and policies: data collection revi

Identify and briefly describe four trends in macro market e, identify and b...

identify and briefly describe four trends in macro market environment which influence on the selected industry?

Service time-probability distribution curve, Service time-probability distr...

Service time-probability distribution curve A common example is that service times follow an exponential probability distribution i.e. y=e -x Service channels - t

Need help with one question, Decide which costs are associated with the ass...

Decide which costs are associated with the assignment of cost for a Job Order Costing System. Select all that apply. cost graphs (Points : 1) Raw materials are used

Transfer pricing with third party consequences, Transfer pricing with third...

Transfer pricing with third party consequences Transfer prices are used not only for internal record keeping and performance evaluation purposes. There are several settings

Case study, yolande tzar came to norethen ireland

yolande tzar came to norethen ireland

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