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Shortening the credit period A firm is contemplating shortening its credit period from 30 to 20 days and believes that, as a result of this change, its average collection period will decline from 34 to 25 days. Bad-debt expenses are expected to decrease from 1.7% to 1.1% of sales. The firm is currently selling 12,400 units but believes that as a result of the proposed change, sales will decline to 10,300 units. The sale price per unit is S54, and the variable cost per unit is $46. The firm has a required return on equal-risk investments of 24.6%. Evaluate this decision, and make a recommendation to the firm. (Note: Assume a 365-day year.) The reduction in profit contribution rom a decline in sales is $L Round to the nearest dollar Enter as a negative number.

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ACCOUNTS Microsoft Excel Home nert Page Layout Formulas Data Review View dd-Ins s Cut ta copy. E AutoSum Wrap Text General в 1 프 . Ej-., Δ. : rーー 逻锂函Merge & Center. $, % , 弼,8 C Paste Conditional Format CeInsert Delete Format Formatting as Table Styles2 Clear Sort &Find & Format Painter Clipboard GY36 GM Font Alignment Number Styles Cells Edting GP GQ GR GS GT GU GV GX GW 16800 GN GO GY 22 ANS 1 23 24 ANS 2 25 26 27 28 29 30 31 ANS3 32 THE REDUCTION IN CONTRIBUTION FROM DECLINE IN SALES IS (10300-12400) x (54-46) THE BENEFIT FROM REDUCED MARGINAL INVESTMENT IN A/R IS (53133.15-32452.05) X 24.6% EXISTING DEBTORS (12400 X 46 X 34/365) REVISED DEBTORS (10300 X 46 X 25/365) 5087.55 53133.15 32452.05 THE COST SAVING FROM REDUCTION IN BAD DEBTS IS (11383.20-6118.20)) OLD BAD DEBT (12400 X 54 X 1.7%) NEW BAD DEBT (10300 X 54 X 1.1%) THE REDUCTION IN PROFIT CONTRIBUTION FROM DECLINE IN SALES IS ANS 1+ ANS 2 +ANS 3 IS THE PROPOSED PLAN RECOMMENDED NO 5265.00 11383.20 34 35 36 37 ANS 4 38 39 ANS5 40 6118.20 6447 AS IT RESULTS IN LOSS | FIFO . CASH BUDGET 45 BV MV ratioVARIANCE BEP, OL FLatios B-S loss SALES BUDGET DIFF ANALYSIS overheadfloat erences: R46 26-10-2018

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