SMS Co. has sales of P3 million. Itscredit period and average collectionperiod are both 30 days and 1% of itssales end up as bad debts. Thegeneral manager intends to extendthe credit period of 45 days whichwill increase sales by P300,000.However, bad debts losses on theincremental sales would be 3%. Costsof products and related expensesamount to 40% exclusive of the costof carrying receivables of 15% andbad debts expenses. Assuming 360days a year, the change in policywould result to incrementalinvestments in receivables ofP24,704P65,000P162,500P701,573

Average collection period is period required to collect payment from customers.

SMS Co. has sales of P3 million. Its credit period and average collection period are both 30 days and 1% of its sales end up as bad debts. The general manager intends to extend the credit period of 45 days which will increase sales by P300,000. However, bad debts losses on the incremental sales would be 3%. Costs

SMS Co. has sales of P3 million. Its credit period and average collection period are both 30 days and 1% of its sales end up as bad debts. The general manager intends to extend the credit period of 45 days which will increase sales by P300,000. However, bad debts losses on the incremental sales would be 3%. Costs

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter18: The Management Of Accounts Receivable And Inventories

Section: Chapter Questions

Problem 15P

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