Question

Attempts: 0 Keep the Highest: 0/3 1. Problem 22-05 (Relaxing Collection Efforts) eBook 1 Problem Walk-Through Relaxing Collection Efforts The Boyd Corporation has annual credit sales of $2.72 million. Current expenses for the collection department are $45,000, bad-debt losses are 2%, and the days sales outstanding is 30 days. The firm is considering easing its collection efforts such that collection expenses will be reduced to $27,000 per year. The change is expected to increase bad-debt losses to 3% and to increase the days sales outstanding to 45 days. In addition, sales are expected to increase to $2,745,000 per year. Suppose that the opportunity cost of funds is 14%, the variable cost ratio is 71%, and taxes are 40%. Assuming a 365-day year, calculate the cost of carrying receivables under the current policy and the new policy. Enter your answers as positive values. Do not round intermediate calculations. Round your answers to the nearest dollar. Current policy: $ New policy: $ Should the firm relax collection efforts? The firm should relax its collection efforts. Grade It Now Save & Continue Continue without saving

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Problem 22-05 Boyd Corporation Particulars Current policy New policy Expenses D Expenses of collection dept $45000 $27000 2) Bad debt expenses Current - Now - 3% $54400 $82350 (2720.000X22) Q0.000 - Q745000 X37) $99400 $109350 Total expenses Add' opportunity cost Cost 1) Collection period Cusset-> 30 days New - es days $ 30672 $ 45958 (2720000 - 62,745.000 – 544005 8 2350 - 2665600 X14% 266 2650 X 14%. x 30 365 Total $130072 $155308

Less'. In ceeared Sales New policy ($ 4350) 2745000 - 2720000) î sales = $25000 Less: Variable cost = ($17950) (71.X25000 $7250 Less Tax @ 40($2900) (7250X907.) Income $4350- Net expenses $130072 $150958 Summary Celrent policy new policy = ($130,072 $150958) The firm should not relax collection efforts its cust The firm should continue current policy