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

Determine the functions of management accounting, Determine the Functions o...

Determine the Functions of management accounting: 1. Planning and forecasting: management fixes various targets to be achieved by the business in near future. Planning and fo

Quick Question About WACC (Weighted Average Cost of Capital), when assessin...

when assessing Market Value of common stock, is the "market value" the market value when the company sold the stock or the current market value?

Cost comprise impact, Cost comprise impact Some of the policy choices w...

Cost comprise impact Some of the policy choices which tend to have the maximum impact on cost comprise: Product performance, configuration, and characteristics Mix and

Finance, using the operating cycle and any other financial management knowl...

using the operating cycle and any other financial management knowledge,discuss the applicabilty of such cycle to poultry

Classification of ratio according to significance, Classification of ratio ...

Classification of ratio according to significance   The ratios have also been classified according to their significance. Some ratios are more important than other and the fir

State the target pricing method, Rate of return or target pricing method ...

Rate of return or target pricing method Under this method of price determination first of all a rate of return desired by the enterprises on the amount of profit capital inves

Activity –based techniques, Explains how activity –based techniques can be ...

Explains how activity –based techniques can be used to improve performance

What are the characteristics of product life cycle, Characteristics of prod...

Characteristics of product life cycle The major characteristics of life-cycle concept are as follows: 1) The products have finite live and pass by the cycle of development i

Testing the slope, Testing the Slope The strong point of the relationsh...

Testing the Slope The strong point of the relationship among the dependent variable and each of the independent variables can be determined using 3 methods: 1) Correlation

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