Porras Pottery Products, Inc., spends $220,000 per annum on its collection department. The company has $12 million

Question:

Porras Pottery Products, Inc., spends $220,000 per annum on its collection department. The company has $12 million in credit sales, its average collection period is 2.5 months, and the percentage of bad-debt losses is 4 percent. The company believes that, if it were to double its collection personnel, it could bring down the average collection period to 2 months and bad-debt losses to 3 percent. The added cost is $180,000, bringing total collection expenditures to $400,000 annually. Is the increased effort worthwhile if the before-tax of funds is 20 percent? If it is 10 percent? Opportunity Cost
Opportunity cost is the profit lost when one alternative is selected over another. The Opportunity Cost refers to the expected returns from the second best alternative use of resources that are foregone due to the scarcity of resources such as land,...