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

Cost, Stellar Packaging Products and its primary customer, Estrella Coffee,...

Stellar Packaging Products and its primary customer, Estrella Coffee, are deciding on appropriate costing systems for their operations. Stellar Packaging Products’ manufacturing is

Advance factoring and maturity factoring, Advance Factoring and Maturity Fa...

Advance Factoring and Maturity Factoring: In both recourse and non-recourse factoring whether the factor advances cash against book debts to the client instantly on assignment

Linear programming, what areas can linear programming be applied in manager...

what areas can linear programming be applied in managerial accounting?

Explain budgetary control according to CIMA, Budgetary control Accordin...

Budgetary control According to CIMA the establishment of budgets relating the responsibilities of executive to the requirement of a policy and the continuous comparison of achi

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

#title.standard cost and variances., Direct materials,4yard at$3.50per yard...

Direct materials,4yard at$3.50per yard...$14.00 Direct labor,1.5direct labor hours at $12.00 per direct labor hour....$18 Variableoverhead,1.5 direct labour hours at $2.00 per dire

What are the principles of management accounting, What are the Principles o...

What are the Principles of management accounting? 1. The procedures and methods to be followed for keeping and analyzing financial statements should have consistency. It enable

Overhead analysis sheet, Ask question #1.The annual overhead costs for Mona...

Ask question #1.The annual overhead costs for Mona Claire Holdings which has three production centres and two service centres as follows; Indirect wages and supervision Machine

Comparing between real and planned outcomes , Comparing real and planned ou...

Comparing real and planned outcomes and responding to Divergences from Plan The final phases in the process outlined in figure shown below of comparing real and planned outcome

Types of non-controlled variables, Types of Non-Controlled Variables a) ...

Types of Non-Controlled Variables a) Parameters: These are input variables that for a given simulation have a constant value. They are factors which help specify the relat

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