Fri company considers to change its credit terms from net 55 to net 30 to bring its terms in line with other firms in th
Posted: Tue Apr 26, 2022 10:44 am
Fri
company considers to change its credit terms from net 55 to
net 30 to bring its terms in line with other firms in the industry.
At present, annual sales are $360,000 at the average collection
period of 62 days. Fri estimates tightening the credit terms
will reduce the annual sales to $345,000, but accounts receivable
would drop to 35 days of sales. Fri's variable cost ratio is 65
percent and its average cost of funds is percent. Should the
change in credit terms be made? Assume all operating costs are paid
at the time inventory is sold and all sales are collected at the
DSO. Compute and interpret the results.
company considers to change its credit terms from net 55 to
net 30 to bring its terms in line with other firms in the industry.
At present, annual sales are $360,000 at the average collection
period of 62 days. Fri estimates tightening the credit terms
will reduce the annual sales to $345,000, but accounts receivable
would drop to 35 days of sales. Fri's variable cost ratio is 65
percent and its average cost of funds is percent. Should the
change in credit terms be made? Assume all operating costs are paid
at the time inventory is sold and all sales are collected at the
DSO. Compute and interpret the results.