The Pettit Corporation has annual credit sales of $2 million . Current ex- pense
ID: 2700119 • Letter: T
Question
The Pettit Corporation has annual credit sales of $2 million. Current ex- penses for the collection department are $30,000, bad debt losses are 2 percent, and the DSO is 30 days. Pettit is considering easing its collection efforts so that collection expenses will be reduced to $22000 per year. The change is expected to increased bad debt losses to 3% and to increase the DSO to 45 days. In addition sales are expected to increase to $2.2 million per year. Should Pettit relax collection is 12% the varibale coat ratio is 75% and its margin tax rate is 40%? All costs associated with production and cresit sales are paid on the day of the sale.
Explanation / Answer
A) afer removing bad debt expense sales = 1960000
operating income = 0.25*1960000-30000 = 460000
net income = 0.6* 460000 = 276000
B) afer removing bad debt expense sales = 2134000
operating income = 0.25*2134000-22000 = 511500
net income = 0.6* 511500 = 306900
A) DSO = (365*av receivables)/CREDIT SALES .................
av receivables = (30*2*10^6) /365 = 16438.56.........
B) av receivables = (45*2.2*10^6) /365 = 271232.87
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.