Problem $7-33$

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 $$4\mathrm{.}395$ million annually to $$5\mathrm{.}69$ million with credit terms of $\frac{3}{10},$ net $30.$ Furthermore, research estimates that $70$ 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 $12$ times a year. Cost of goods sold $($variable costs$)$ are $65$ percent of gross sales. Bad debts are estimated to be $0\mathrm{.}65$ percent of credit sales. Credit department expenses would be $$51,900$ per year plus the salary of $3$ individuals at $$36,900$ 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.

a$.$ Should OB$1$ Sabres Ltd$.$ adopt the proposed policy?

No

Yes

b$.$ Show the calculations. $($Use $365$ 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.$)$

$\frac{?}{{?}_{\frac{?}{?}}}$ Sales

Present policy

New policy

answers in whole dollar, not in million. Do not round intermediate calculation.$)$

$\frac{?}{{?}_{\frac{?}{?}}}$ Sales

Present policy

New policy

$$ Contribution margin

$\frac{?}{{?}_{\frac{?}{?}}}$ Discount expense

Present policy

New policy

$\frac{?}{{?}_{\frac{?}{?}}}$ Bad debt expense

Present policy

New policy

$\frac{?}{{?}_{\frac{?}{?}}}$ Marketing expense

Present policy

New policy

$$ Administrative expense $($related to credit department$)$

Present policy

New policy