Balsam Corporation Is Concerned About Their Current Bad Debt Ratio

question 33

Multiple Choice

Balsam Corporation is concerned about their current bad debt ratio of 9%.The CFO believes imposing a more stringent credit policy may reduce sales by 8% and reduce the bad debt ratio to 6%.If the cost of goods sold is 85% of the selling price, determine if the new policy should be undertaken.

• A)Undertake; increase of 40% in profits
• B)Undertake; increase of 38% in profits
• C)Do not undertake; decrease of 36% in profits
• D)Do not undertake; decrease of 34% in profits

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Definitions:

Operating Departments

Divisions or units within an organization that are directly involved in the core operations or primary purpose of the business.

Setup Cost

The expenses incurred to get equipment ready to process a different batch of goods, distinct from the operational costs of running the equipment.

Number of Setups

A measurement in manufacturing that refers to how many times equipment is adjusted or changed to produce different products.

Maintenance Department

The section of an organization responsible for maintaining and repairing its facilities, equipment, and vehicles to ensure operational efficiency.