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

Summary journal entries, Stine Company uses a job order cost system. On May...

Stine Company uses a job order cost system. On May 1, the company has a balance in Work in Process Inventory of $3,730 and two jobs in process: Job No. 429 $2,150, and Job No. 430

Managerial decision, Explain the practical application of differential cost...

Explain the practical application of differential costing with examples

Credit standards, This variable deals along with the granting of credit. On...

This variable deals along with the granting of credit. On one great all the customers are granted credit and conversely, none of them are granted credit irrespective of their credi

Concentration banking, When the customers of the company are spread over br...

When the customers of the company are spread over broad geographical areas then in place of a particular collection centre the company opens collection centres at the regional stag

Budget Problem, BUDGET PROBLEM The Budget Director of Dave, Inc. with the ...

BUDGET PROBLEM The Budget Director of Dave, Inc. with the assistance of the Controller, Production Manager and the Sales Manager has gathered the following data for use in develop

How much must you deposit each year to reach your goal, Right now you are 2...

Right now you are 20 years old and you have decided that you want to have $2,000,000 in the bank when you turn 65 years old. How much must you deposit each year to reach your goal

Integer programming, Integer Programming It is a technique for solving ...

Integer Programming It is a technique for solving a linear programming model with an added constraint that the decision variables must only be non-negative integers. In the

Net operating increase problem , The president expects sales to increase by...

The president expects sales to increase by 12% next year. By how much should net operating income increase? Sales $2,000,000 Variable expenses 1,000

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