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

---

Definitions:

Green-circle Rate

A situation in wage-setting where an employee's pay is below the minimum of the range set for their job class, often due to an anomaly or an exception in the salary structure.

Rank-and-file Adjustment

Changes or modifications made to the conditions or ranks of the general workforce, not the leadership or management.

Uniformed Services Employment and Reemployment Rights Act

A federal law that provides job protection and rights for military service members upon their return to civilian employment.

Fair Labor Standards Act

A United States law that creates the right to a minimum wage, and "time-and-a-half" overtime pay when people work over forty hours a week, among other protections for workers.