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Compute the net advantage or disadvantage of the plan

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Question - ABC sold boxes of candles at P1,000 each. For each box, ABC incurs variable cost of P750. Daily sales total 500 boxes over its 250-work day year. All sales are on credit. For the coming year, it plans to accept customers who have less desirable credit ratings. Sales are expected to increase by 10%. Average collection period will increase from 40 days to 50 days. Bad debts will increase from 1% to 3% of sales. Fixed expenses will stay the same. For profitability analysis, ABC uses an 8% effective interest rate.

Required - If ABC proceeds with its plan to accept the new market group, compute for the following:

1. Compute the increase in contribution margin?

2. Compute the increase in receivables carrying cost?

3. Compute the increase in bad debts?

4. Compute the net advantage or disadvantage of the plan?

Reference no: EM133110103

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