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:

Cannibalization

A situation where a company's new product eats into the sales of one of its existing products.

Brand Equity

The value derived from consumer perception of a brand name as opposed to generic or store-branded products.

Product Extension

A marketing strategy in which an existing product is introduced to a new market or modified for a new segment, expanding its reach or functionality.

Brand Recognition

The extent to which consumers can identify a brand by its attributes, symbol, or design, without seeing the brand name.