Question

Bugle Boy Company has an opportunity cost of funds of 10 percent and a credit policy based on net 45 days. If all of its customers adhere to the stated terms and annual sales increase from $4.11 million to $6.12 million, what will be the increased cost of funds tied up in accounts receivable? (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to the nearest whole dollar. Enter answer in whole dollar not in million.)

Answer 1

The increased cost of funds tied up in accounts receivable for Bugle Boy Company is $8,612,864. This was calculated using the formula: Increased cost of funds = Average accounts receivable × Average daily sales on credit × Opportunity cost of funds, where the average accounts receivable was assumed to increase proportionally with the increase in sales, the average daily sales on credit was calculated as $16,767.12, and the opportunity cost of funds was given as 10%.