StarWars Auto Systems 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 StarWars Auto Systems have been suggested. Research suggests that sales in the upcoming year would jump from $$4\mathrm{.}31$ million annually to $$5\mathrm{.}52$ million with credit terms of $1/10,$ net $30.$ Furthermore, research estimates that $85$ 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 $13$ times a year. Cost of goods sold $($variable costs$)$ are $75$ percent of gross sales. Bad debts are estimated to be $0\mathrm{.}75$ percent of credit sales. Credit department expenses would be $$50,200$ per year plus the salary of $2$ individuals at $$35,200$ 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 $4$ percent of gross sales. Bank financing of working capital requirements is at $11$ percent.

a$.$ Should StarWars Auto Systems adopt the proposed policy?

multiple choice

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.$)$

$\backslash$Delta Sales

Present policy $

New policy

$

$\backslash$Delta Contribution margin

$\%$ $

$\backslash$Delta Discount expense

Present policy $

New policy

$

$\backslash$Delta Bad debt expense

Present policy $

New policy

$

$\backslash$Delta Marketing expense

Present policy $

New policy

$

$\backslash$Delta Administrative expense $($related to credit

department$)$

Present policy $

New policy $

$

$\backslash$Delta Investment in accounts receivable

Present policy $

New policy

$85\%$ of the customers

$15\%$ of the customers

$

$\backslash$Delta Opportunity benefit on investment in A$/$R

$\%$ $

$\backslash$Delta Investment in inventory

Present policy $

New policy

$

$\backslash$Delta Opportunity benefit on inv. investment

$\%$

Total incremental change $