Read the case study and answer the questions that follow. Note that you have to type your answers into the response box provided and that you cannot "cut and paste" from Word or Excel. Concord Distributing Company sells small woodworking tools to hardware stores throughout the West. Chuck Barry, the president of the company, is thinking about changing the credit policies offered by the firm to attract customers away from competitors. The current policy calls for a 1/10, net 30, and the new policy would call for a 3/10, net 50. Currently, 40 percent of Concord customers are taking the discount, and it is anticipated that this number would go up to 50 percent with the new discount policy. It is further anticipated that annual sales would increase from a level of $200,000 to $250,000 as a result of the change in the cash discount policy. The increased sales would also affect the inventory level carried by Concord. The average inventory carried by Concord is based on a determination of an EOQ. Assume the average number of units in storage would increase from 1,000 units in stock to 1,118 units necessary to service the increased sales. The ordering cost for each order is $100 and the carrying cost per unit is $1 (these values will not change with the discount). Each unit in inventory has an average cost of $6.50. The number of units ordered under EOQ would increase to 2,236 tools. Cost of goods sold is equal to 65 percent of net sales, general and administrative expenses are equal to 10 percent of net sales, and interest payments of 12 percent will be necessary only for the increase in the accounts receivable and inventory balances. Taxes will equal 25 percent of before-tax income. Question 26 (19 points) Complete an income statement before and after the policy change. Paragraph B I UA o + v Read the case study and answer the questions that follow. Note that you have to type your answers into the response box provided and that you cannot "cut and paste" from Word or Excel. Concord Distributing Company sells small woodworking tools to hardware stores throughout the West. Chuck Barry, the president of the company, is thinking about changing the credit policies offered by the firm to attract customers away from competitors. The current policy calls for a 1/10, net 30, and the new policy would call for a 3/10, net 50. Currently, 40 percent of Concord customers are taking the discount, and it is anticipated that this number would go up to 50 percent with the new discount policy. It is further anticipated that annual sales would increase from a level of $200,000 to $250,000 as a result of the change in the cash discount policy. The increased sales would also affect the inventory level carried by Concord. The average inventory carried by Concord is based on a determination of an EOQ. Assume the average number of units in storage would increase from 1,000 units in stock to 1,118 units necessary to service the increased sales. The ordering cost for each order is $100 and the carrying cost per unit is $1 (these values will not change with the discount). Each unit in inventory has an average cost of $6.50. The number of units ordered under EOQ would increase to 2,236 tools. Cost of goods sold is equal to 65 percent of net sales, general and administrative expenses are equal to 10 percent of net sales, and interest payments of 12 percent will be necessary only for the increase in the accounts receivable and inventory balances. Taxes will equal 25 percent of before-tax income. Question 26 (19 points) Complete an income statement before and after the policy change. Paragraph B I UA o + v
