Berkeley Prints Expects to Have Sales This Year of $15

question 4

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 bad debt losses if the change were made?

• A) $130,000
• B) $250,000
• C) -$250,000 (bad debt losses would decline)
• D) -$130,000 (bad debt losses would decline)
• E) $620,000

---

Definitions:

Nonliteral

Not adhering strictly to the literal or exact meaning of words; figurative.

Concept

Refers to an abstract idea or a mental symbol that is typically a fundamental building block of human thinking and communication.

Terms

Words or phrases used in specific contexts with particular meanings, often within academic, legal, or technical fields.

Sweat

The process of perspiring as a means for the body to regulate its temperature and remove certain waste products.