Warren Motor Company Sells $30 Million of Its Products to Wholesalers

question 68

Multiple Choice

Warren Motor Company sells $30 million of its products to wholesalers on terms of "net 30." Currently, the firm's average collection period is 48 days.In an effort to speed up the collection of receivables, Warren is considering offering a cash discount of 2 percent if customers pay their bills within 10 days.The firm expects 50 percent of its customers to take the discount and its average collection period to decline to 30 days.The firm's required pretax return (i.e., opportunity cost) on receivables investment is 16 percent.Determine the cost of the cash discounts to Warren.

• A)$300,000
• B)$60,000
• C)$40,000
• D)$48,000

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Definitions:

Supply Chain

A framework consisting of different organizations, people, actions, intelligence, and resources aimed at delivering a product or service from the creator to the buyer.

Flexibility

Refers to the ability of a system or organization to adapt to changes or variability in its environment, operations, or demand.

Advanced Planning Systems

Sophisticated software tools designed to optimize supply chain performance by improving planning and decision-making processes.

Software Vendors

Companies that develop and sell software products or services to customers.