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

Standard costing .., the applicability of standard costing in modern manufa...

the applicability of standard costing in modern manufacturing environments in volatile environments

Collection effort, The collection policy of a firm is intend at timely coll...

The collection policy of a firm is intend at timely collection of overdue amount and comprises of the subsequent. a.      Monitoring the state of debtors (account receivable)

Explain profitability ratios in relation to sales, Explain Profitability ra...

Explain Profitability ratios in relation to sales a) Gross profit ratio b) Net profit ratio c) Operating ratio d) Operating profit ratio e) Expenses ratio

Determine the distribution cost and research cost, Determine the Distributi...

Determine the Distribution cost and Research cost Distribution cost: The cost of sequence of the operations which begin with making the packed product available for dispa

Factory layout-jit features, Factory Layout The first stage of implemen...

Factory Layout The first stage of implementing the JIT manufacturing techniques is to rearrange the factory floor away from the batch production functional layout towards a pro

Costs and benefits of factoring, Two types of costs concerned in factoring ...

Two types of costs concerned in factoring are as: 1) The service fee or factoring commission 2) The interest on advances granted through the factor to the firm. Factoring

Objectives of receivables management, After going through this section, you...

After going through this section, you must be capable to: Know the need for establishing sound credit policy; Identify the different credit policy variables; Know the cred

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