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Question - Accounts receivable changes without 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. No change in bad debt is expected. The firm's opportunity cost on its investment in accounts receivable is 12%. (Note: Use a 365-day year.)
a. Calculate the additional profit contribution from sales if the change in collecting accounts receivable is implemented.
b. Calculate the marginal investment in accounts receivable that will result from the change.
c. Calculate the cost of the marginal investment in accounts receivable.
d. Would you recommend the firm implement the proposed change?
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