Question 42

XYZ, Inc., spends $300,000 per annum on its collection department. The company has $50 million in credit sales, its average collection period is 1.5 months, and the percentage of bad-debt losses is 3.0%. The company believes that, if it were to double its collection personnel, it could bring down the average collection period to 1 months and bad-debt losses to 2.5%. The added cost is $300,000, bringing total collection expenditures to $600,000 annually.

How much bad-debt losses will be reduced if the expansion is adopted?

Group of answer choices

$100,000.00

$1,200,000.00

$1,000,000.00

$200,000.00

$250,000.00