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Karen's Canoes Income Statement INCOME STATEMENT No Change % of Sales With Change Assumptions Sales 3 0 0 1 0 0 . 0 0 %
Karen's Canoes Income Statement INCOME STATEMENT No Change of Sales With Change Assumptions Sales Given Variable Costs Material Labor Overhead Variable Portion Selling Expense Collection Exp Variable Portion Total Variable Costs Total Fixed Costs Profit before Credit Costs Opportunity Cost of Investment in AR See below Opportunity Cost of Investment in Inv See below Opportunity Cost of Bad Debts Expense x per problem EBT Opportunity Cost of Investment in AR DSO SalesDay Var Cost Ratio Cost of Funds Total Old Policy New Policy Opportunity Cost of Investment in Inventory Change in Sales COGS Annual Inv TO Cost of Funds Total New Policy Assignment: Determine the expected change in beforetax profit for the proposed change in credit standards. Prepare the income statements in total, not per unit. The following information should be used in your analysis. Sales occur evenly throughout the year. The firm is currently operating undercapacity. Opportunity cost of Inventory Investment Change in Annual Sales x COGS X r Annual Inventory Turnover Karens Canoes is considering relaxing its credit standards to encourage more sales. As a result, sales are expected to increase from canoes per year to canoes per year. The average collection period is expected to increase to days from days and bad debts are expected to double the current level as a of sales To support the higher sales level, an increase in the level of inventory will be necessary. The firms required return on investment is and their annual inventory turnover is times. Their COGS is The current standard cost data is shown below. Sales Price per canoe $ Variable Costs per canoe: Material Labor Overhead Selling Expense Collection Expense Total VC Costs per canoe Bad Debts of sales
Karen's Canoes
Income Statement
INCOME STATEMENT No Change of Sales With Change Assumptions
Sales Given
Variable Costs
Material
Labor
Overhead Variable Portion
Selling Expense
Collection Exp Variable Portion
Total Variable Costs
Total Fixed Costs
Profit before Credit Costs
Opportunity Cost of Investment in AR See below
Opportunity Cost of Investment in Inv See below
Opportunity Cost of Bad Debts Expense x per problem
EBT
Opportunity Cost of Investment in AR DSO SalesDay Var Cost Ratio Cost of Funds Total
Old Policy
New Policy
Opportunity Cost of Investment in Inventory Change in Sales COGS Annual Inv TO Cost of Funds Total
New Policy
Assignment:
Determine the expected change in beforetax profit for the proposed change in credit standards.
Prepare the income statements in total, not per unit. The following information should be used in your
analysis.
Sales occur evenly throughout the year.
The firm is currently operating undercapacity.
Opportunity cost of Inventory Investment
Change in Annual Sales x COGS X r
Annual Inventory Turnover
Karens Canoes is considering relaxing its credit standards to encourage more sales. As a result, sales are
expected to increase from canoes per year to canoes per year. The average collection
period is expected to increase to days from days and bad debts are expected to double the
current level as a of sales To support the higher sales level, an increase in the level of inventory will
be necessary. The firms required return on investment is and their annual inventory turnover is
times. Their COGS is
The current standard cost data is shown below.
Sales Price per canoe $
Variable Costs per canoe:
Material
Labor
Overhead
Selling Expense
Collection Expense
Total VC Costs per canoe
Bad Debts of
sales
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