XYZ Co sells television sets throughout Western Canada.

The current credit policies being offered are $2/10,$ net $30$ and the new policy being considered is $4/10,$ net $50.$

Currently $40\%$ of customers take advantage of the discount policy. Assume no bad debt and the remaining customers pay within $30$ days.

With the change in policy, the annual sales would increase from $$200,000$ to $$260,000.$

The increased sales would also affect inventory levels. The average inventory carried is based on EOQ.

Assume unit sales will increase from $20,000$ to $25,000$ units.

The ordering cost per order is $$100$ and the carrying cost per unit is $$1\mathrm{.}00.$

Each unit in inventory has an average cost of $$6\mathrm{.}50.$

Cost of Goods Sole is $=65\%$ of net sales, general and admin expenses are $=10\%$ of net sales, and interest payments of $12\%$ will be necessary only for the increase in AR and Inventory balances.

Taxes $=25\%.$

A$)$ Compute the Average Collection period and AR balance before and after the change in the discount policy. Use net sales $($Total sales $$ cash discounts$)$ to determine the average daily sales and AR balances.

B$)$ Determine EOQ before and after the change in the cash discount policy. Translate this into average inventory $($in units and dollars$)$ before and after the change in the cash discount policy.

C$)$ Complete an income statement before and after the policy change.

D$)$ Should the new cash discount policy be utilized? Yes or No and WHY?

Answer text Question $4$