OB1 Sabres Lod. has detemined that product sales are nof what they could be because they have unesed capacty. As a restit, the company is censidering adfusting its marketing strategr. At present, all sakes to distritertors are on a cash basis, but the compefition oflers credt terms. Similar credt terma for Ob1 Sabees have been suggested. Pestearch suggeits that sales in fee upcoming year would kenp from $4355 milkon annuatly to 5561 milion with credf teres of 1410 , net 30 . Furtheenoec, research entimates that 20 peroent of the customers would take the discount and the remainder woild piy cen average on the 30th day. Inventory furnover would remain at 13 frwes a year, Cost of goods sold (variable costs) are 65 percent of gross sates. Bad debls are estimated to be 0.65 percent of credi sales. Credit department expenses would be $51,100 per yoar plus the salary of 3 indinduals at 536,100 per year tach. One of the staft woeld be reassigned hom another division without aflecting costs or productivity as that Indmiduat is cumenty redusdant in that disich. Marketing expenses are 5 pereent of gross saies. Bank financing of weeking capilal requirements is at 12 percent:- a. Shondd OEl Sabres 14d adopt the proposed policy? nattiple chice b. 5how the calcualabot (Wse 365 dars ie a yar. De not lewe any empor in-lirated br a minus sige. Enter aaberers is whale dellar, act in malline. De 14. timina Weakene fukmy Now pelik in OB1 Sabres Ltd, has determined that product sales are not what they could be because they have unused capacity. As a result, the company is considering adjusting its marketing strategy. At present, all sales to distributors are on a cash basis, but the competition offers credit terms. Similar credit terms for OB1 Sabres have been suggested. Research suggests that sales in the upcoming year would jump from $4.355 million annually to $5.61 million with credit terms of 1/10, net 30 . Furthermore, research estimates that 80 percent of the customers would take the discount and the remainder would pay on average on the 30 th day. Inventory turnover would remain at 13 times a year. Cost of goods sold (variable costs) are 65 percent of gross sales. Bad debts are estimated to be 065 percent of credit sales. Credit department expenses would be $51,100 per year plus the salary of 3 individuals at $36,100 per year each. One of the staff would be reassigned from another division without affecting costs or productivity as that individual is currently redundant in that division. Marketing expenses are 5 percent of gross sales. Bank financing of working capital requirements is at 12 percent 0. Should OB1 Sabres Ltd adopt the proposed policy? No Yes b. Show the calculations. (Use 365 days in o yeor. Do not leave any empty speces; input o " 0 " wherever required. Round the onswers to the nearest whole dollor. Negotive answers ond the volues to be deducted should be indicated by a minus sign. Eater answers in whole dollor, not in million. Do not round intermediote colcuiotion. Sales Present policy New policy A Contribution margin Discount expense Present policy New policy a Bad debt expense Present policy New policy A Marketing expense Present policy Hew pollcy Q. Administrtive expense (related to credit departinent) Present pol1cy fiem pol1cy New policy Investment in accounts receivable Present policy New policy Be\% of the customers 20% of the customers Opportunity benefit on Investment in A/R Investment in inventory Present policy New policy opportunity benefit on inv, investent Total incremental change
