Question

Henderson office supplies is considering a more liberal credit policy to increase sales, but it expects that 8 percent of the new accounts will be uncollectible. collection costs are 5 percent of new sales, production costs are 78 percent of sales, and accounts receivable turnover is five times. assume an increase in sales of $60,000. no other asset buildup will be required to service the new accounts.

Answer 1

To determine the impact of a more liberal credit policy on Henderson Office Supplies, we need to consider the various costs and accounts receivable turnover.

Step-by-step explanation:

To determine the impact of a more liberal credit policy on Henderson Office Supplies, we need to consider the various costs and accounts receivable turnover. The uncollectible accounts can be calculated by multiplying the expected percentage of uncollectible accounts (8%) by the increase in sales ($60,000). This gives us a value of $4,800. The collection costs can be calculated by multiplying the new sales ($60,000) by the collection cost percentage (5%). This gives us a value of $3,000. The increase in production costs can be calculated by multiplying the new sales ($60,000) by the production cost percentage (78%). This gives us a value of $46,800.

The accounts receivable turnover can be found by dividing the total sales by the average accounts receivable. Since the turnover is given as five times, we can divide the total sales by five to find the average accounts receivable. In this case, the total sales will be the increase in sales ($60,000).

Now, to determine the impact on the collection costs and production costs, we can multiply the average accounts receivable by the collection cost percentage (5%) to find the collection costs, and by the production cost percentage (78%) to find the production costs. The difference between the current costs and the costs with the more liberal credit policy will give us the impact on the costs.