Widget Manufacturing Company's current credit terms are 1/10, net 30. Widget is considering changing its terms to 2/10, net 40, relaxing its credit standards, and putting less pressure on slow-paying customers. Data for the existing credit policy is appended below along with Management's forecasted expectations for new policy changes. Based on the information provided, complete the cost of carrying receivables for both the current and new credit policy.

Note: Since the DSO increases the firm will receive the cash from profits on sales later. This is an opportunity cost since the firm doesn't have the cash from profits to make investments.

Please show work ( adding numbers or cells ) , will rate. thank you.

Current Policy $410,000 New Policy $550,000 Annual sales = 1% 2% Discount = % customers who take discount = % customers who pay on day % customers who pay on day % customers who pay on day % customers who pay on day Variable cost ratio = Cost of funds = Bad debt percent = Credit analysis and collections expenses = 50% 50% 40% 10% 0% 55% 12% 2.6% $6,000 60% 60% 0% 20% 20% 55% 12% 6.1% $4,000 24 21 $2,050 $6,600 Current DSO = Current discounts = Cost of carrying = (DSO)(Sales per day)(VC ratio)(Cost of funds) Cost of carrying = Bad debt losses = $10,660 $33,550 Opportunity cost = (Old sales/365)(ADSO)(1 - V)(r) = $182 Widget Manufacturing Company: Analysis of Changing Credit Policy Complete the missing information for the Net Income Statement below: Projected 2016 Effect of Net Income Credit Under Current Policy Credit Policy (1) Change (2) Projected 2016 Net Income Under New Credit Policy (3) $2,050 $4,550 $6,600 $0 $0 $0 Gross sales Less discounts Net sales Production costs, including OH Profit before credit costs and taxes Credit related costs: Cost of carrying receivables Credit analysis and collection expenses Bad debt losses Profit before taxes Taxes (25%) Net Income $0 $0 $0 $0 $0 $0 Current Policy $410,000 New Policy $550,000 Annual sales = 1% 2% Discount = % customers who take discount = % customers who pay on day % customers who pay on day % customers who pay on day % customers who pay on day Variable cost ratio = Cost of funds = Bad debt percent = Credit analysis and collections expenses = 50% 50% 40% 10% 0% 55% 12% 2.6% $6,000 60% 60% 0% 20% 20% 55% 12% 6.1% $4,000 24 21 $2,050 $6,600 Current DSO = Current discounts = Cost of carrying = (DSO)(Sales per day)(VC ratio)(Cost of funds) Cost of carrying = Bad debt losses = $10,660 $33,550 Opportunity cost = (Old sales/365)(ADSO)(1 - V)(r) = $182 Widget Manufacturing Company: Analysis of Changing Credit Policy Complete the missing information for the Net Income Statement below: Projected 2016 Effect of Net Income Credit Under Current Policy Credit Policy (1) Change (2) Projected 2016 Net Income Under New Credit Policy (3) $2,050 $4,550 $6,600 $0 $0 $0 Gross sales Less discounts Net sales Production costs, including OH Profit before credit costs and taxes Credit related costs: Cost of carrying receivables Credit analysis and collection expenses Bad debt losses Profit before taxes Taxes (25%) Net Income $0 $0 $0 $0 $0 $0