What is the firm marginal profit contribution from sales

Reference no: EM132821102

Problem - Dizzy Animators, Inc. currently makes all sales on credit and offers no cash discount. The firm is considering a 3 % cash discount for payment within 10 days. The firm's current average collection period is 90 days, sales are 500 films per year, selling price is P 25,000 per film, variable cost per film is P 18,000 per film, and the average cost per film is P 21,000. The firm expects that the change in credit terms will result in a minor increase in sales of 10 films per year, that 70 % of the sales will take the discount, and the average collection period will drop to 30 days. The bad debt expense is currently 1.5% of sales. Under the proposal, bad debts will decrease to 0.5%. The firm's required return on equal-risk investments is 12%.

Required -

1. What is the firm's marginal profit contribution from sales under the proposed plan of initiating the cash discount?

2. What is the marginal investment in accounts receivable under the proposed plan?

3. What is the cost of marginal investment in accounts receivable under the proposed plan?

4. What are the savings of marginal bad debts under the proposed plan?

Reference no: EM132821102

Questions Cloud

Describe the sources of sharia law : The idea of a ‘Blog' in this class is to make a striking claim to challenge common assumptions about religion. Think creatively along these lines.

Strategic management project background : Identify and assess the two most important factors/issues of Caterpillar's internal environment.

What amount should be reported as cost of goods sold : What amount should be reported as cost of goods sold on the income statement if 5,000 units are produced and 4,000 are sold?

Explain aspects of latin american and caribbean studies : Discuss what aspects of Latin American and Caribbean studies are illustrated by the movie? What elements of Latin American culture are illustrated?

What is the firm marginal profit contribution from sales : What is the firm's marginal profit contribution from sales under the proposed plan of initiating the cash discount

Annotated bibliography assignments : Each student will be responsible for completing 3 annotated bibliography assignments throughout the semester.

Find which would result in a decrease of a company : Find which would result in a decrease of a company's contribution margin per unit? Increased variable cost per unit. / Decreased sales commission

Critically analyse the key information systems concepts : Critically analyse the key Information systems concepts and technologies in the context of contemporary businesses and organisations

Find how much will profit increase or decrease : Find how much will profit increase or decrease if the order is accepted? Smooth Move Company manufactures professional paperweights

User Account

All Pages