Assume all operating costs are paid when inventory

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Reference no: EM131535559

Lewis Lumber is considering changing its credit terms from net 55 to net 30 to bring its terms in line with other firms in the industry. Currently, annual sales are $360,000, and the average collection period (DSO) is 62 days. Lewis estimates that tightening the credit terms would reduce annual sales to $355,000, but accounts receivable would drop to 38 days of sales. Lewis’ variable cost ratio is 65 percent and its average cost of funds is 12 percent. Should the change in credit terms be made? Assume all operating costs are paid when inventory is sold and that all sales are collected at the DSO.

Reference no: EM131535559

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