A firm is evaluating an accounts receivable
change that would increase bad debts from 2% to 4% of sales. Sales are currently
50,000 units, the selling price is $20 per unit, and the variable cost per unit is
$15. As a result of the proposed change, sales are forecast to increase to 60,000 units.
a. What are bad debts in dollars currently and under the proposed change?
b. Calculate the cost of the marginal bad debts to the firm.
c. Ignoring the additional profit contribution from increased sales, if the proposed
change saves $3,500 and causes no change in the average investment in accounts
receivable, would you recommend it? Explain.
Ask Your Question
We have verified professionals who are ready to answer your question.
Save Time and Money
We choose experts who can quickly answer your question and that suit your budget.
Get Your Answer
Your satisfaction is 100% guaranteed. You can keep on asking questions until you get the answer you need.