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

Learning and spillovers , Learning and Spillovers The cost of a value ...

Learning and Spillovers The cost of a value activity can decline over time due to learning that increases its efficiency. The methods by which learning can lower cost over tim

Hire purchase and leasing, This is a most familiar form of medium term fina...

This is a most familiar form of medium term financing in obtaining plant and vehicles, machinery etc. In hire purchase transactions, the purchaser of goods will obtain the possessi

Inventory planning & control under uncertainty, Inventory planning & contro...

Inventory planning & control under uncertainty The basic EOQ model assumes that all the parameters (elements) in the model are certain (i.e. can be predicted precisely in advan

Sources of working capital, Sources of Working Capital Finance Working ...

Sources of Working Capital Finance Working capital finance may be classified in the subsequent: Spontaneous Source of Finance Finance that naturally arises in

Standard costing .., the applicability of standard costing in modern manufa...

the applicability of standard costing in modern manufacturing environments in volatile environments

What is the issue price for bond a and b, Q. What is the issue price for Bo...

Q. What is the issue price for Bond A and B ? On December 31, 20x7, the Jill Corporation issued $20,000,000 of 15 year face value bonds. The bonds pay interest on June 30 and D

Marginal & absorption costing, select any manufacturing company of your cho...

select any manufacturing company of your choice that produces any product. describe and compare the marginal and absorption costing system used in the selected company

Describe financial budgets, Describe Financial budgets Financial budget...

Describe Financial budgets Financial budgets: financial budgets are concerned with cash receipts and disbursements working capital expenditure financial position and business o

Process Inventory, Hoe to find the cost of goods transferred under weighted...

Hoe to find the cost of goods transferred under weighted average method

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