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

State overhead expenses, State overhead expenses It is to be noted tha...

State overhead expenses It is to be noted that the term overheard has a wider meaning than the term indirect expanses. Overheads include the cost of the indirect material and

150 to 200 words, solutions for (POS) slow printing of sales tickets and un...

solutions for (POS) slow printing of sales tickets and unpredictable action of cash drawers. when credit approvals delayed the checkout process or when the computer was down, thus

Incremental analysis, What nonfinancial factors should management consider ...

What nonfinancial factors should management consider in making its decision on whether to accept or reject a special order?

Financial accounting , Financial Accounting Which is concerned with th...

Financial Accounting Which is concerned with the provision of information to external parties outside the organization? It is the procedure of measuring, classifying, summariz

Cost behavior-cost drivers , Cost Behavior A firm's cost position res...

Cost Behavior A firm's cost position results from the cost behavior of its value activities. The cost behavior is based on a number of structural factors which influence cost

Control-role of management accountant , Control Control includes a ...

Control Control includes a comparison of actual performance with the plan so that deviation from the plan can be identified and corrective action taken. It can be define

What is pricing under decline stage, Q. What is Pricing under decline stage...

Q. What is Pricing under decline stage? Pricing under decline stage: under this stage sales are at their highest point. He should reduce the price if necessary taking the compe

Costs, Recommend whether marginal or absorption costing should be use for i...

Recommend whether marginal or absorption costing should be use for internal monthly reporting

Depreciation, How to calculate straight line depreciation for a partial yea...

How to calculate straight line depreciation for a partial year i.e. Refurb. depreciation starts in may till end of 8 year lease. Therefore its 7.666 years

Job Order Costing, Salialailai Ltd manufactures water tanks for different s...

Salialailai Ltd manufactures water tanks for different sizes for use by industrial customers. The company uses a job costing system, in which manufacturing overhead is applied on t

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