Sally Stillwagon owns a hardware store; she sells items for cash and on account. During 1998, which seemed to be a typical year, some of her company's operating data and other data were as follows:

A national credit card agency has tried to convince Stillwagon that instead of carrying her own accounts receivable, she should accept only the agency's credit card for sales on credit. The agency would pay her two days after she submits sales charges, deducting \(6 \%\) from the amount and paying her \(94 \%\).

Required

a. Using the data given, prepare an analysis showing whether or not Stillwagon would benefit from switching to the credit card method of selling on credit.

b. What other factors should she take into consideration?

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Sales: For cash On credit Cost of obtaining credit reports on customers Cost incurred in paying a part-time bookkeeper to keep the accounts receivable subsidiary ledger up to date. . Cost associated with preparing and mailing invoices to customers and other collection activities. Uncollectible accounts expense Average outstanding accounts receivable balance (on which Stillwagon estimates she could have earned 10% if it had been invested in other assets) $1,200,000 2,200,000 3.600 12,000 18,000 45,000 180,000