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That is the entire problem, it isnt missing any information. Wellington Imports, an importer and exporter of precious metals and jewelry from around the world,
That is the entire problem, it isnt missing any information.
Wellington Imports, an importer and exporter of precious metals and jewelry from around the world, sells its objets d'art to stores in six northeastern states and generates annual sales of $4,500,000. In response to increasing concerns regarding the firm's slow collections and elevated bad-debt ratios, Wellington's treasurer has suggested that the firm change its current collection policy. Specifically, he proposes that the firm progress beyond its current collection efforts-sending late-payment notices and making follow-up telephone calls-and hire an outside professional collection agency. It is expected that the collection agency will cost $35,000 and that the firm's sales and inventory requirements will be unaffected by the policy change. To facilitate the evaluation of this proposal, the treasurer has had his assistant, Abigail, collect the following information and has asked you to determine whether or not Wellington should revise its collection policy: Current Credit Data Forecasted Data for Revised Collection Policy Days sales outstanding (DSO)=95 days Days sales outstanding (DSO)=70 days Bad-debt losses =10% of sales Bad-debt losses =5% of sales Contribution margin =25% Return earned on any freed funds =14% Given this data and assuming that the revised collection policy is implemented, complete the following statements. (Note: Round your answers to the nearest dollar.) Wellington's accounts receivable investment is expected to change by B. The marginal income earned on any freed funds is expected to be C. The change in the firm's bad-debt losses is forecast to be D. The expected net benefit associated with the revised policy is Based on these findings, should Wellington make the proposed change? Why or why not? No, because the net benefit of the proposal is equal to or greater than $0. Yes, because the net benefit of the proposal is negative. No, because the net benefit of the proposal is negative. Yes, because the net benefit of the proposal is equal to or greater than $0. Setting a firm's collection policy involves trade-offs. Which of the following statements regarding this process are true? Check all that apply. Setting an overly aggressive collection policy runs the risk of alienating good customers who may be going through relatively minor and brief cash flow difficulties. Setting a lax collection policy will result in added costs and often will not increase the speed at which the collections are received nor reduce the firm's losses due to uncollectible accounts. Cost is not a relevant factor when setting or modifying a firm's collection policy. A good collection policy is an expensive policy that results in an average collection period equal to the credit period and zero bad debts Step by Step Solution
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