A firm is evaluating an accounts receivable change that would increase bad debts from 2% to

5%

of sales. Sales are currently

50,000

units, the selling price is $20 per unit, and the variable cost per unit is $15. As a result of the proposed change, sales are forecast to increase to

80,000

units.

a.What are bad debts in dollars currently and under the proposed change?

b.Calculate the cost of the marginal bad debts to the firm.

c.Ignoring the additional profit contribution from increased sales, if the proposed change saves $3,500 and causes no change in the average investment in accounts receivable, would you recommend it?

d.Considering all changes in costs and benefits, would you recommend the proposed change?

e.Compare and discuss your answers in parts c and

d.

Question content area bottom

Part 1

a.The firm's current amount of bad debts in dollars is

$enter your response here.

(Round to the nearest dollar.)