Mercury LLP does not currently extend credit to their customers. They manufacture drum sets and sell them to specialty retailers in Canada. Last year the company sold 400 drum sets at a price of $400.00 per drum set The company is considering offering new credit terms of net 40 days to all customers to drive sales. They believe the competitive advantage this new policy would provide would allow Mercury LLP to increase the selling price of their product by $12.00 per unit and Increasing sales by 80 units per year Variable costs are expected to remain at $300,00 per unit and bad debt experte will be $3.000 per year. (Note the wording here. Total Contribution Margin will go up for two reasons. First, there will be a price increase on the rising 400 drumeting sold. Second, there will be an additional 80 drum sets sold at the new price. Perform your analysis on total sales and total contribution margin, not just the change in sales volume) Mercury LLP expects that all customers will take advantage of the new terms (e, they will all pay Mercury LLP 40 days after a sale is recorded). So, for the first time in the company's history they will have an accounts receivable balance in current assets and a bad det expense. The increase in sales will also mean an increase in the inventory they hold. Inventory is currently sitting at $495.000 and is expected to increase by 15 percent. The firm will finance the additional investment in working capital by using a line of credit (bank loan) which charges 8 percent interest per year Required: A. Calculate the increase in current assets and the costs to finance that increase (anter all numbers as whole numbers) Old New Difference Description Jenter all numbers as positive) B. Calculate the impact of changing the credit policy on contribution margin Description New Old (enter all numbers as positive) Sales $ $ Variable Exp Contribution Margin $ Difference C. Calculate the net impact of changing the credit policy Impact Description Increase in contribution margin (enter as a positive number) Increase in bad debts (enter as a negative numben Bank interest cost (enter as a negative number Net change (enter as a negative number if the amount is less than zero) $ 2. Would you offer the new credit terms? (Click to select) Mercury LLP does not currently extend credit to their customers. They manufacture drum sets and sell them to specialty retailers in Canada. Last year the company sold 400 drum sets at a price of $400.00 per drum set The company is considering offering new credit terms of net 40 days to all customers to drive sales. They believe the competitive advantage this new policy would provide would allow Mercury LLP to increase the selling price of their product by $12.00 per unit and Increasing sales by 80 units per year Variable costs are expected to remain at $300,00 per unit and bad debt experte will be $3.000 per year. (Note the wording here. Total Contribution Margin will go up for two reasons. First, there will be a price increase on the rising 400 drumeting sold. Second, there will be an additional 80 drum sets sold at the new price. Perform your analysis on total sales and total contribution margin, not just the change in sales volume) Mercury LLP expects that all customers will take advantage of the new terms (e, they will all pay Mercury LLP 40 days after a sale is recorded). So, for the first time in the company's history they will have an accounts receivable balance in current assets and a bad det expense. The increase in sales will also mean an increase in the inventory they hold. Inventory is currently sitting at $495.000 and is expected to increase by 15 percent. The firm will finance the additional investment in working capital by using a line of credit (bank loan) which charges 8 percent interest per year Required: A. Calculate the increase in current assets and the costs to finance that increase (anter all numbers as whole numbers) Old New Difference Description Jenter all numbers as positive) B. Calculate the impact of changing the credit policy on contribution margin Description New Old (enter all numbers as positive) Sales $ $ Variable Exp Contribution Margin $ Difference C. Calculate the net impact of changing the credit policy Impact Description Increase in contribution margin (enter as a positive number) Increase in bad debts (enter as a negative numben Bank interest cost (enter as a negative number Net change (enter as a negative number if the amount is less than zero) $ 2. Would you offer the new credit terms? (Click to select)
