Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Kim Mitchell, the new credit manager of the Vinson Corporation, was alarmed to find that Vinson sells on credit terms of net 9 0 days

Kim Mitchell, the new credit manager of the Vinson Corporation, was alarmed to find that Vinson sells on credit terms of net 90 days while industry-wide credit terms have recently been lowered to net 30 days. On annual credit sales of $2.54 million, Vinson currently averages 95 days of sales in accounts receivable. Mitchell estimates that tightening the credit terms to 30 days would reduce annual sales to $2,415,000, but accounts receivable would drop to 35 days of sales and the savings on investment in them should more than overcome any loss in profit. Vinsons variable cost ratio is 63%, taxes are 40%, and the interest rate on funds invested in receivables is 18%. Assuming a 365-day year, calculate the cost of carrying receivables under the current policy and the new policy. Enter your answers as positive values. Do not round intermediate calculations. Round your answers to the nearest dollar.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Auditing Theory And Practice

Authors: C. William Thomas

1st Edition

0534013880, 978-0534013882

More Books

Students also viewed these Accounting questions

Question

2

Answered: 1 week ago

Question

Describe the types of power that effective leaders employ

Answered: 1 week ago

Question

Describe how leadership styles should be adapted to the situation

Answered: 1 week ago