Berkeley Prints Expects to Have Sales This Year of $15

question 32

Multiple Choice

Berkeley Prints expects to have sales this year of $15 million under its current credit policy. The present terms are net 30; the days dales outstanding (DSO) is 60 days; and the bad debt loss percentage is 5 percent. Also, Berkeley's cost of capital is 15 percent, and its variable costs total 60 percent of sales. Since Berkeley wants to improve its profitability, a proposal has been made to offer a 2 percent discount for payment within 10 days; that is, change the credit terms to 2/10, net 30. The consultants predict that sales would increase by $500,000, and that 50 percent of all customers would take the discount. The new DSO would be 30 days, and the bad debt loss percentage on all sales would fall to 4 percent.
-What would be the incremental cost of carrying receivables if the change were made?

• A) -$108,750 (carrying costs would decline)
• B) $116,250
• C) $157,900
• D) -$225,000 (carrying costs would decline)
• E) $260,000

Understand optimal resource allocation to maximize profits.

Calculate the financial impact of inventory decisions, including overstocking and understocking costs.

Apply theoretical concepts to determine optimal production levels based on demand forecasts.

Analyze methods to reduce demand uncertainty in managerial decisions.

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Definitions:

Guaiac Test

A diagnostic test that uses a chemical reaction to detect the presence of blood in stool, indicative of gastrointestinal issues.

Mucus

A thick, slippery substance produced by the mucous membranes and glands to moisturize and protect various parts of the body.

Colonoscopy

A medical procedure using a long, flexible camera to examine the inner lining of the colon and rectum for abnormalities.

Flatulence

The accumulation of gas in the alimentary canal, often resulting in the expulsion through the rectum.