User Account

All Pages

Assignment, Other Engineering

Assignment Help:
Financial Management, Finance
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:- Assignment

Heat and mass transfer, attachment

attachment

Reaction engines - aircraft maintance, These can be divided into several ca...

These can be divided into several categories. Turbojet engines. The turbojet was the first type of jet engine developed. In this engine all the air passes through the core engin

Meer, write drawback of linear array

write drawback of linear array

Engineering science , the axle diameters of differential wheel and axle lif...

the axle diameters of differential wheel and axle lifting machine are 254mm and 129mm respectively.the load has a mass of 36kg and the effort required is 300N.if the efficiency is

Skin-core debonding in sandwich structures, If the skins are peeled from th...

If the skins are peeled from the core, a sandwich structure loses its strength and stiffness. This can occur under - wave-slamming in fast ferries - rapid depressurisati

Exhaust section inspection of aircraft, Exhaust Section Inspection. Ins...

Exhaust Section Inspection. Inspection of the exhaust section of the engine can be done visually using an appropriate light source. The exhaust cone and jet pipe are examined

Accounting hep, Here are the budgets of Brandon Surgery Center for the mos...

Here are the budgets of Brandon Surgery Center for the most recent historical quarter (in thousands of dollars): Static Flexible Actual Number of surgeries 1,200 1,300 1,

Replacement analysis of cash flow, Replacement Analysis In the previous...

Replacement Analysis In the previous chapter we have compared various investment alternatives. Two scenarios were considered: single alternative and a set of mutually exclusive

Financial management, Sharpe Knife Company expects sales next year to be $1...

Sharpe Knife Company expects sales next year to be $1,500,000 if the economy is strong, $800,000if the economy is steady, and $500,000if the economy willb e strong, a 50 percent pr

Pitch control unit (pcu) operation - propellers, Pitch control unit (pcu) o...

Pitch control unit (pcu) operation: The action of the Governor bob weights, due to the varying RPM of the engine, is to raise or lower an internal piston to cover or open fluid

Write Your Message!

Captcha
Order Assignment

Featured Services

Order Now

Popular Subjects

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!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +91-977-207-8620

Phone: +91-977-207-8620

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

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