Berkeley Prints Berkeley Prints Expects to Have Sales This Year of $15

question 35

Multiple Choice

Berkeley Prints
Berkeley Prints expects to have sales this year of $15 million under its current credit policy. The present terms are net 30; the days sales outstanding (DSO) is 60 days; and the bad debt loss percentage is 5 percent. Also, Berkeley's cost of capital is 15 percent, and its variable costs total 60 percent of sales. Because Berkeley wants to improve its profitability, a proposal has been made to offer a 2 percent discount for payment within 10 days; that is, change the credit terms to 2/10, net 30. The consultants predict that sales would increase by $500,000, and that 50 percent of all customers would take the discount. The new DSO would be 30 days, and the bad debt loss percentage on all sales would fall to 4 percent.
-Refer to Berkeley Prints.What would be the incremental bad debt losses if the change were made?

• A) $130,000
• B) $250,000
• C) −$250,000 (bad debt losses would decline)
• D) −$130,000 (bad debt losses would decline)
• E) $620,000

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Definitions:

Interpersonal Influences

The effect that the behaviors, opinions, or preferences of individuals or groups have on one's own attitudes or actions.

Consumer Behavior Process

The stages consumers go through before, during, and after making purchases including recognition of needs, information search, evaluation of alternatives, purchase decision, and post-purchase behavior.

Cobranding

A marketing partnership between two or more companies where their combined efforts are used to promote and sell a product or service.

Six Sigma

A methodology focused on improving quality and reducing defects in any process, aiming for near perfection through a disciplined, data-driven approach.