EXERCISE 11: RELAXING TERMS OF SALES Jem Trading Corp. Provided you with the following data...
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EXERCISE 11: RELAXING TERMS OF SALES Jem Trading Corp. Provided you with the following data on its current operations: 120,000 Units $50 Annual Sales Volume Units Selling Price Variable costs and expenses per Unit (Including bad debt provision of 1% of sales Fixed Costs and Expenses Gross profit rate Sales Terms No. of days sales in inventory Terms of purchase Cost of capital Income tax 32 700,000 40% 15 days charge 10 15 days charge 20% 25% There has been a proposal to prolong sales terms to 20 days to increase sales by more or less 25%. However, the manageer turned down this proposal because it would incrase accounts receivable and consequently expose the company to more risk from defaults so that bad debts might go up to 3% of sales. Another reason given by the manager is that the proposal would increase the working capital requirment. QUESTION: Do you agree with the manager? Support and explain yourr answer with computation
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