Problem 28-16 Credit Policy

The Silver Spokes Bicycle Shop has decided to offer credit to its customers during the spring selling season. Sales are expected to be 600 bicycles. The average cost to the shop of a bicycle is $525. The owner knows that only 96 percent of the customers will be able to make their payments. To identify the remaining 4 percent, the company is considering subscribing to a credit agency. The initial charge for this service is $750, with an additional charge of $10 per individual report.

What is the cost of the subscription to the credit agency? (Do not round intermediate calculations.)

Cost of the subscription

$

What is the savings from collection of the bad debts? (Do not round intermediate calculations.)

Savings from not selling to bad credit risks

$

What are the company's net savings from subscribing to the credit reports? (Do not round intermediate calculations.)

Company's net savings

$

Should company subscribe to the agency?

	No