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:

Direct Labor Costs

Wages paid to workers directly involved in manufacturing a product or providing a service.

Cost of Goods Manufactured

The total cost incurred by a company to produce goods in a specific period, including labor, materials, and overhead.

Job-Order Costing

A cost accounting system used to accumulate costs per job or order rather than a process, suitable for customized orders.

Cost of Goods Manufactured

The total cost incurred to produce products during a specific period, including materials, labor, and overhead.