Cash discount, Managerial Accounting

Assignment Help:

Cash discount is given to buyers to bring them to make prompt payment. The credit terms identify the percentage discount and the period throughout which it is obtainable. Liberal cash discount policy implies that either the discount percentage is raised or the discount period is raise. This leads to improved sales, reduce in average collection period and increase in cost.  The consequence of this on net profit can be estimate through the equation 3.

 ?NP = [? S (1 - V ) - ?DIS ] (1 - t ) +  k?I

Here I = Savings in receivables investment

 ? DIS = Increase in discount cost

? I = S0/360 (ACPn - ACP0) - V (ACPn)( ?S/360)

? DIS = Pn (S0 +?S) dn - P0S0d0

Here Pn    =    Proportion of discount sales after liberalizing the discount terms.

S0    =    Sales before liberalizing the discount terms

? S = raise in sales

dn   =   New discount percentage

P0   =   Proportion of discount sales before liberalizing the   discount terms

d0    =   Old discount percentage


Related Discussions:- Cash discount

Identify and briefly describe four trends in macro market e, identify and b...

identify and briefly describe four trends in macro market environment which influence on the selected industry?

Model construction, Model Construction The success of a simulation exer...

Model Construction The success of a simulation exercise is related to the predictive quality of the underlying model, so that considerable care should be taken with model const

Calculate the direct materials costs, XYZ Industries manufactures electroni...

XYZ Industries manufactures electronic testing equipment. XYZ also installs the equipment at customers' sites and ensures that it functions smoothly. Additional information on the

Evaluation of the regression model, EVALUATION OF THE REGRESSION MODEL ...

EVALUATION OF THE REGRESSION MODEL The regression equation calculated above was based on the assumption that cost varied with the units produced. However, a number of different

Decision making environment-risk seeking-neutral-averse, Risk seeking:  ...

Risk seeking:  A risk seeker is a decision maker who is concerned in the best likely outcome no matter how small the chance that they might take place i.e. he takes high risks

Illustration of abc analysis, Illustration: ABC analysis Combine items ...

Illustration: ABC analysis Combine items on the basis of their relative value to form three categories—A, B and C. The data in the table below illustrates the ABC analysis.

Generates paychecks and management reports, Time sheets are collected in a ...

Time sheets are collected in a batch, and the information is manually keyed into the system. This data is now stored on a magnetic disk. An editing program is run, which verifies w

150 to 200 words, solutions for (POS) slow printing of sales tickets and un...

solutions for (POS) slow printing of sales tickets and unpredictable action of cash drawers. when credit approvals delayed the checkout process or when the computer was down, thus

Determine a firms earnings per share, You have been asked to determine the ...

You have been asked to determine the EPS indifference EBIT* level for your firm using the following information. Under the high-leverage alternative (a D/E ratio of 1.50), the firm

What are the advantages of activity based costing, Advantages of activity b...

Advantages of activity based costing 1) It helps understanding the behavior of overhead costs and their relations ship to products services customers and market segments. 2)

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd