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Problem 7 - 3 3 OB 1 Sabres Ltd . has determined that product sales are not what they could be because they have unused
Problem OB 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 OB Sabres have been suggested. Research suggests that sales in the upcoming year would jump from $ million annually to $ million with credit terms of net Furthermore, research estimates that percent of the customers would take the discount and the remainder would pay on average on the th day. Inventory turnover would remain at times a year. Cost of goods sold variable costs are percent of gross sales. Bad debts are estimated to be percent of credit sales. Credit department expenses would be $ per year plus the salary of individuals at $ 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 percent of gross sales. Bank financing of working capital requirements is at percent. a Should OB Sabres Ltd adopt the proposed policy? No Yes b Show the calculations. Use days in a year. Do not leave any empty spaces; input a wherever required. Round the answers to the nearest whole dollar. Negative answers and the values to be deducted should be indicated by a minus sign. Enter answers in whole dollar, not in million. Do not round intermediate calculation. Sales Present policy New policy answers in whole dollar, not in million. Do not round intermediate calculation. Sales Present policy New policy Contribution margin Discount expense Present policy New policy Bad debt expense Present policy New policy Marketing expense Present policy New policy Administrative expense related to credit department Present policy New policy
Problem
OB 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 OB Sabres have been suggested. Research suggests that sales in the upcoming year would jump from $ million annually to $ million with credit terms of net Furthermore, research estimates that percent of the customers would take the discount and the remainder would pay on average on the th day. Inventory turnover would remain at times a year. Cost of goods sold variable costs are percent of gross sales. Bad debts are estimated to be percent of credit sales. Credit department expenses would be $ per year plus the salary of individuals at $ 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 percent of gross sales. Bank financing of working capital requirements is at percent.
a Should OB Sabres Ltd adopt the proposed policy?
No
Yes
b Show the calculations. Use days in a year. Do not leave any empty spaces; input a wherever required. Round the answers to the nearest whole dollar. Negative answers and the values to be deducted should be indicated by a minus sign. Enter answers in whole dollar, not in million. Do not round intermediate calculation.
Sales
Present policy
New policy
answers in whole dollar, not in million. Do not round intermediate calculation.
Sales
Present policy
New policy
Contribution margin
Discount expense
Present policy
New policy
Bad debt expense
Present policy
New policy
Marketing expense
Present policy
New policy
Administrative expense related to credit department
Present policy
New policy
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