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

---

Definitions:

Individual Charge

A specific amount of money billed to a person for a product or service.

Immediate Medical Help

Urgent assistance provided by healthcare professionals in response to a person's acute healthcare needs.

Trouble Breathing

A symptom characterized by difficulty in breathing or experiencing shortness of breath, potentially indicative of various medical conditions.

Flu

An infectious respiratory illness caused by influenza viruses that can cause mild to severe symptoms and complications.