Problem 7 3 3 OB 1 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 1 Sabres have been suggested Research suggests that sales in the upcoming year would jump from $ 4 3 9 5 million annually to $ 5 6 9 million with credit terms of 3 1 0 , net 3 0 Furthermore, research estimates that 7 0 percent of the customers would take the discount and the remainder would pay on average on the 3 0 th day Inventory turnover would remain at 1 2 times a year Cost of goods sold ( variable costs ) are 6 5 percent of gross sales Bad debts are estimated to be 0 6 5 percent of credit sales Credit department expenses would be $ 5 1 , 9 0 0 per year plus the salary of 3 individuals at $ 3 6 , 9 0 0 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 1 2 percent a Should OB 1 Sabres Ltd adopt the proposed policy No Yes b Show the calculations ( Use 3 6 5 days in a year Do not leave any empty spaces input a 0 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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Problem 7   3 3 OB 1 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 1 Sabres have been suggested  Research suggests that sales in the upcoming year would jump from $ 4   3 9 5 million annually to $ 5   6 9 million with credit terms of 3 1 0 , net 3 0   Furthermore, research estimates that 7 0 percent of the customers would take the discount and the remainder would pay on average on the 3 0 th day  Inventory turnover would remain at 1 2 times a year  Cost of goods sold ( variable costs ) are 6 5 percent of gross sales  Bad debts are estimated to be 0   6 5 percent of credit sales  Credit department expenses would be $ 5 1 , 9 0 0 per year plus the salary of 3 individuals at $ 3 6 , 9 0 0 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 1 2 percent  a   Should OB 1 Sabres Ltd   adopt the proposed policy  No Yes b   Show the calculations  ( Use 3 6 5 days in a year  Do not leave any empty spaces  input a   0   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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Problem 7 - 3 3 OB 1 Sabres Ltd . has determined that product sales are not what they could be because they have unused

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