1-The Alpha Company has decided to offer credit to their customers during the se
ID: 2649455 • Letter: 1
Question
1-The Alpha Company has decided to offer credit to their customers during the second quarter of the year. It is expected that sales are 10,000 units. The average cost of a drive to the store, equals $ 3.00. The owner knows that only 85% of customers will be able to make the payments due. To identify the other 15% are thinking of becoming subscriber of the services of a credit reporting agency. The initial cost of the services is $ 800.00 with an additional fee of $ 2.80 per individual report. The signature must be done? a)ln this case, not worth hiring external credit services, as the company Alfa would be trading aloss of $ 4,500.00 fora cost of $ 5,000.00. bln this case, it would be worth hiring external credit services, as the company Alfa would be trading a loss of $ 3,500.00 for a cost of $ 3,000.00. clin this case, not worth hiring external credit services, as the company Alfa would be trading a loss of $ 7,500.00 fora cost of $ 6,000.00 diln this case, it would be worth hiring external credit services, as the company Alfa would be trading a loss of $ 759.76 for an expenditure of $555.35. elln this case, not worth hiring external credit services, as the company Alfa would be trading a loss of $ 1,560.87 fora cost of $ 2,135.87.
Explanation / Answer
Total cost =$800 of initial cost and the additional cost of $2.80*10,000*15% =$800+$4,200 =$5,000.
Loss that the firm would incur if the 15% of customers turn bad debts =1500 *3 =$4,500.
Hence, answer is option a. to restrict a loss of $4,500 the firm would be incurring a cost of $5,000. Hence it is not worth hiring an external credit agency.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.