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

Optimum cash balance - baumols model, The Baumol Model in 1952 considers ca...

The Baumol Model in 1952 considers cash management complication as same to inventory management problem. For itself the firm attempts to minimize the total cost that is the sum of

Explain variable cost and fixed cost, Explain variable cost and fixed cost ...

Explain variable cost and fixed cost Variable costs: costs that vary almost in the direct proportion to the volume of production are known as variable costs. The examples of

Multi-collinearity, Multi-collinearity Multiple regression analysis is ...

Multi-collinearity Multiple regression analysis is based on the assumption that the independent variables are not correlated with each other, whenever the independent variables

Problrm question, The std cost of chemical mixture~PQ is as follows: 40% of...

The std cost of chemical mixture~PQ is as follows: 40% of material P @rs.400/kg 60% of material Q @rs.600/kg A std loss of 10% is normally anticipated in pdn. The followinng parti

Basic assumption of transportation model, Basic Assumption of Transportatio...

Basic Assumption of Transportation Model The basic assumption of the model is that the transportation cost on a given route is directly proportional to the number of units tran

Determine the profitability ratios in relation to investment, Determine the...

Determine the Profitability ratios in relation to investment a) Return on capital employed/ return on investment b) Return on equity or return on equity share holders' funds

Working capital decisions, The decisions about long-term investment are dep...

The decisions about long-term investment are depends on judgments on future cash flows, the improbability of such cash flows and the opportunity cost also of the funds to be invest

Bussiness.., #queThe following information pertains to Fairways Driving Ran...

#queThe following information pertains to Fairways Driving Range, Inc.: The company is considering operating a new driving range facility in Sanford, FL. In order to do so, they

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