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4. Game of Drones plc produces and sells drones. The company was once the market leader, but increasing competition is threatening its financial health. The
4. Game of Drones plc produces and sells drones. The company was once the market leader, but increasing competition is threatening its financial health. The company hired a consultant who highlighted the following two problem areas: 1) Receivables management 2) Total quality management ("TQM") REQUIRED: (a) Currently customers receive one-month credit, but customers take on average 70 days to pay. Sales revenue amounts to 4 million a year and bad debts to 20,000 a year. The consultant suggests a plan to offer customers a cash discount of 1% if they pay within 30 days. He estimates that 50% of customers will take this option and the remaining 50% will continue to wait (on average 80 days). Bad debt is expected to fall to 4,000 if this option is taken. A further reduction in follow-up costs of 6,000 is expected. The cost of capital is 12%. Advise the company, giving your reasons, whether this plan is worth implementing. Listed below are the company's quality costs. Classify these into prevention costs, appraisal costs, internal failure costs and external failure costs (provide total costs for each category). Compare the company's costs of quality with the industry average and advise management on how to manage their costs. d) Briefly discuss how addressing both receivables management and TQM can help improve the company's financial health
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