Saskatchewan Potash Ltd

question 27

Multiple Choice

Saskatchewan Potash Ltd. has $20 million in credit sales per year and on average they are outstanding for 55 days. Potash sells for $1,000 per ton and results in a 20% contribution margin. Receivables are financed at a 10% interest rate. Bad debts total $600,000 annually. The accounting department has a new plan by which it estimates it can eliminate three-quarters of the bad debts and reduce the collection period by 25 days if it is permitted to hire one collections specialists at a cost of $105,000 per year. Some sales would be lost due to credit tightening under the new plan. By what percentage would sales have to decline to leave Saskatchewan Potash Ltd. indifferent between the two alternatives.?

• A) 12.57%
• B) 13.57%
• C) 14.57%
• D) 15.57%
• E) 16.57%

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Definitions:

Causes

refers to principles, aims, or movements that people support or fight for, especially in the realm of social or political issues.

Business Proposal

A document designed to offer specific goods or services to a potential buyer or client.

Overhead Costs

The ongoing expenses not directly attributed to creating a product or service but necessary for running a business, such as rent, utilities, and administrative salaries.

Budget

An estimate of income and expenditure for a set period of time, often used for planning and managing finances.