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

Accounting for pension plans, how do i calculate the actuarial gains or los...

how do i calculate the actuarial gains or losses on the present value of plan obligations?

International transfer pricing-compliance and documentation, International ...

International transfer pricing Transfer pricing is a perennial issue, within the international tax community (Richard Casna, Accounting and Business, in the year February 1988)

Alternative performance measures, Alternative performance measures Ther...

Alternative performance measures There are various measures that can be used to measure performance of a decentralized company. The major ones are: •    Return on Investmen

Explain about office and administrative expenses, Explain about Office and ...

Explain about Office and administrative expenses These expenses are not related to factory but they pertain to the management and administration of the business. Such expenses

Choosing relationship predicts best variable-cost estimating, Choose the re...

Choose the relationship which best predicts the dependent variable After exploring a diversity of relationships, you should select the one that can best be employed in predicti

Break even analysis, Break even analysis and target profit, taxes - Patters...

Break even analysis and target profit, taxes - Patterson Parkas Company's sales revenue is $30 per unit, variable costs are $19.50 per unit, and fixed costs are $147,000. a)Compute

Conditions necessary in a control cycle, Conditions necessary in a control ...

Conditions necessary in a control cycle There are four necessary conditions that must be satisfied before any system can be said to be controlled. Such are as follows: (1) O

Explain indirect expanses, Explain Indirect expanses: These are expanse...

Explain Indirect expanses: These are expanses which can't be directly conveniently and wholly allocated to a specific cost centres or cost units examples of such expanses are h

Determine the need and importance of management accounting, Determine the N...

Determine the Need and importance of management accounting: 1.Increasing efficiency: management accounting increases efficiency of business operations. The targets of differe

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