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Requirement (a) I need step by step how to get the data. Thanks Boynewater Ltd produces a range of domestic products and sells these on
Requirement (a) I need step by step how to get the data.
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Boynewater Ltd produces a range of domestic products and sells these on credit to a network of dealers. Annual sales are currently 40 million, and the company operates on a gross profit of 25% of sales price. The average collection period for outstanding amounts is 60 days, and bad debts are currently 1% of turnover. Boynewater Ltd operates an overdraft facility at a rate of 14% per annum The following options have been put forward for evaluation. I. Transfer management of the credit control function to a non-recourse factor. The factor would charge a fee of 7.5% and would pay 92.5% of the value of the debtors upon transfer. Using a factor would save 45,000 per annum in administration costs. As an alternative to using a factor, a cash discount of 2% would be offered to customers for payment within 7 days. It is anticipated that 50% of all customers would avail of the early settlement discount. In addition to the positive cash flow benefit, it is expected that bad debts would reduce to 0.6 % of sales as a result of this scheme. ll. II. By tightening up on the company's credit approval policy, it is anticipated that debtor days could be reduced to the industry average of 45 days. Turnover would fall by an estimated 15% and bad debts would be 0.8% of sales as a result of the new credit control policy. Requirement (a) Evaluate, separately, each of the above proposed changes to the credit control policies of Boynewater Ltd. (b) W (70 marks) hat other factors should be taken into account in setting and implementing a credit control policy and procedure. (30 marks) Boynewater Ltd produces a range of domestic products and sells these on credit to a network of dealers. Annual sales are currently 40 million, and the company operates on a gross profit of 25% of sales price. The average collection period for outstanding amounts is 60 days, and bad debts are currently 1% of turnover. Boynewater Ltd operates an overdraft facility at a rate of 14% per annum The following options have been put forward for evaluation. I. Transfer management of the credit control function to a non-recourse factor. The factor would charge a fee of 7.5% and would pay 92.5% of the value of the debtors upon transfer. Using a factor would save 45,000 per annum in administration costs. As an alternative to using a factor, a cash discount of 2% would be offered to customers for payment within 7 days. It is anticipated that 50% of all customers would avail of the early settlement discount. In addition to the positive cash flow benefit, it is expected that bad debts would reduce to 0.6 % of sales as a result of this scheme. ll. II. By tightening up on the company's credit approval policy, it is anticipated that debtor days could be reduced to the industry average of 45 days. Turnover would fall by an estimated 15% and bad debts would be 0.8% of sales as a result of the new credit control policy. Requirement (a) Evaluate, separately, each of the above proposed changes to the credit control policies of Boynewater Ltd. (b) W (70 marks) hat other factors should be taken into account in setting and implementing a credit control policy and procedure. (30 marks)Step by Step Solution
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