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As treasurer of the Universal Bed Corporation, Aristotle Procrustes is worried about his bad debt ratio,...

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Finance

As treasurer of the Universal Bed Corporation, AristotleProcrustes is worried about his bad debt ratio, which is currentlyrunning at 7.0%. He believes that imposing a more stringent creditpolicy might reduce sales by 5% and reduce the bad debt ratio to5.0%. Assume current sales are $100.

Expected Profit?

If the cost of goods sold is 70% of the selling price, what isthe expected profit on the more stringent credit policy?(Do not round intermediate calculations. Round your answerto 2 decimal places.)

Expected Profit?

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3.6 Ratings (533 Votes)

Formula Current policy Proposed policy
Sales reduce by 5% under proposed policy Sales                   100.00                   95.00
7%*Sales; 5% of Sales Less: bad debts                       7.00                      4.75
70%*Sales Less: COGS                     70.00                   66.50
(Sales-bad debts-COGS) Profit                     23.00                   23.75

Expected profit under current policy = $23

Expected profit under proposed policy = $23.75
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Transcribed Image Text

As treasurer of the Universal Bed Corporation, AristotleProcrustes is worried about his bad debt ratio, which is currentlyrunning at 7.0%. He believes that imposing a more stringent creditpolicy might reduce sales by 5% and reduce the bad debt ratio to5.0%. Assume current sales are $100.Expected Profit?If the cost of goods sold is 70% of the selling price, what isthe expected profit on the more stringent credit policy?(Do not round intermediate calculations. Round your answerto 2 decimal places.)Expected Profit?

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