Receivables: Credit Terms: ABC sold boxes of candles at P1,000 each. Each box costs P750. Daily sales total 500 boxes over its 250-work day year. All sales are on credit. For the coming year, it plans to accept customers who have less desirable credit ratings. Sales are expected to increase by 10%. Average collection period will increase from 40 days to 50 days. Bad debts will increase from 1% to 3% of sales. Operating expenses will stay the same. For profitability analysis, ABC uses an 8% effective interest rate. Compute for the required by filling up the supporting table. Required: How much would the following be assuming that ABC proceeds with its plan to accept the new market group? 7. Increase in gross profit 8. Increase in receivables carrying cost 9. Increase in bad debts 10. Net advantage or disadvantage of the plan Notes: 1. The Increase/(Decrease) column may be computed either by row or later once the Current and Proposed columns are complete. 2. Some parts of the computations were omitted in the supporting table. These include turnovers and average balance as well as conversion of daily amounts to annual amounts. Students are assumed to know how to compute for these because they were taken up in the previous topics. 3. Be careful when computing for the net advantage or disadvantage. Increase in gross profit is favorable/advantageous but increase in expenses are not.

Receivables: Credit Terms: ABC sold boxes of candles at P1,000 each. Each box costs P750. Daily sales total 500 boxes over
its 250-work day year. All sales are on credit. For the coming year, it plans to accept customers who have less desirable
credit ratings. Sales are expected to increase by 10%. Average collection period will increase from 40 days to 50 days. Bad
debts will increase from 1% to 3% of sales. Operating expenses will stay the same. For profitability analysis, ABC uses an 8%
effective interest rate. Compute for the required by filling up the supporting table.
Required: How much would the following be assuming that ABC proceeds with its plan to accept the new market group?
7. Increase in gross profit
8. Increase in receivables carrying cost
9. Increase in bad debts
10. Net advantage or disadvantage of the plan
Notes:
1. The Increase/(Decrease) column may be computed either by row or later once the Current and Proposed
columns are complete.
2. Some parts of the computations were omitted in the supporting table. These include turnovers and average
balance as well as conversion of daily amounts to annual amounts. Students are assumed to know how to
compute for these because they were taken up in the previous topics.
3. Be careful when computing for the net advantage or disadvantage. Increase in gross profit is
favorable/advantageous but increase in expenses are not.