Campbell Computing Inc

question 25

Multiple Choice

Campbell Computing Inc.currently has sales of $1,000,000,and its days sales outstanding is 30 days.The financial manager estimates that offering longer credit terms would (1) increase the days sales outstanding to 50 days and (2) increase sales to $1,200,000.However,bad debt losses,which were 2 percent on the old sales,would amount to 5 percent on the incremental sales only (bad debts on the old sales would stay at 2 percent) .Variable costs are 80 percent of sales,and Campbell has a 15 percent receivables financing cost.What would the annual incremental pre-tax profit be if Bass extended its credit period?

• A) -$20,000
• B) -$10,000
• C) $0
• D) $10,000
• E) $20,000

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Definitions:

Order Fulfillment

The complete process from receiving an order to delivering the product or service to the customer.

Time-Driven

An approach or methodology that is based on the amount of time required to perform activities, often used for planning, scheduling, or costing purposes.

Activity-Based Costing

A cost assignment approach that finds activities in an entity and assigns each activity's expenses to all goods and services based on actual use.

Customer Service

The support and assistance provided by a company to people who buy or use its products or services.