Logan Distributing Comoany of Atlanta sells fans and heaters to retail outlets throughout the Southeast. Joe Logan, the president of the company, is thinking about changing the firm's credit policy to attact customers away from competitors. The present policy calls for a 1/10, bet 30 cash discount. The new policy would call fir a 3/10, net 50 cash discount. Currently 30 percent of Logan customers are taking the discount, and it is antipated that this number would go up to 50 percent with the bew disciunt policy. It is further anticipated that annual sales would increase from a level of $400,000 to $600,000 as a result of the change in the cash discount policy.

The increased sales would also affect the inventory level. The average inventory carried by Logan is based on a determination of an EOQ. Assume sales of fans and haters increase from 15,000 to 22,000 units. The ordering cost for each order is $200 and the carrying cost per unit is $1.50 (these values will nit change with the disciunt). The average inventiry is based on EOQ/2. Each unit in inventory has an average cost of $12.

Cost of goods sold is equal to 65 percent of net sales; general abd administrative expenses are 15 percent of net sales, and interest payments of 14 percent will only be necessary for the increase in the account receivabke and inventory balance. Taxes will be 40 percent of before-tax income.

a. Compute the account receivable balance before and after the change in the cash discount policy. Use the net sales (total sales minus cash discounts) to determine the average daily sales.

b. Determine EOQ before and after the change in the cash duscount policy. Translate this into acerage inventory (in units and dollars) before and after the change in the cash discount policy.