Question

A firm sells 120K units of product per year at $20/unit. Variable production cost is $12/unit. The firm considers relaxing credit standards and estimates that sales would increase by 5%, the ACP from 30 to 45 days and bad debt expense from 1% to 2% of sales. It costs 12% per year to finance the CCC. Is this a good idea? Assume a commercial year and that all sales are on credit.

Answer: Yes. Incremental profit ($48,000) > incremental financial cost ($8,280) + incremental bad debt expense ($26,400)

**Can you please explain how we get incremental finance
cost as 8280$**

.

Answer #1

**SEE THE IMAGE. ANY DOUBTS,
FEEL FREE TO ASK. THUMBS UP PLEASE**

A firm manufactures a product that sells for $12 per unit.
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___________ c. How many units must they sell per month in order to
break even? _________ d. How many units must they sell in order to
have a profit of $2,500 per month? ___________

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In a typical year, 20% of sales units are Product 1, while 40%
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335 units
329...

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but believes that as a result of the proposed change, sales will
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a....

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The direct variable cost of the product is broken down into two
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$
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LILLIPUT COMPANY
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$
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Calculate (a) contribution margin and (b) operating
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