Reference no: EM132920884

Question - Accounts receivable changes with bad debts Clear Glass Company sells glass containers. It reported total sales of $1,580,000, with 60% of the sales on credit. It takes 60 days to collect accounts receivable. The selling price is $20 per container while the variable cost is $15 per container. The board is currently investigating a change in the collection of accounts receivable that is expected to result in a 20% increase in credit sales and a 10% increase in the average collection period. Bad debts will also increase, from 2% to 4% of sales. The firm's opportunity cost on its investment in accounts receivable is 12%. (Note: Use a 365-day year.)

Required -

a. Calculate bad debts in dollars for the current and proposed plans.

b. Calculate the cost of the marginal bad debts to Clear Glass Company.

c. Would you recommend the proposed plan? Explain.

d. Under what circumstances would the decision to implement the proposed plan change?