Big Thompson Industries (BTI)

question 86

Multiple Choice

Big Thompson Industries (BTI)
Big Thompson Industries (BTI) currently produces and sells 50,000 units of a motor relay used in high-end electronics. All sales are on credit, for a price of $750 per unit to all customers. These motor relays incur $525 in variable costs and $3,000,000 in fixed costs per year. With current credit standards, BTI’s average collection period is 30 days. Managers are considering a relaxation in standards, and forecast a 6 percent increase in sales, along with an increase in the average collection period to 45 days. Additionally, bad debt expense is expected to increase from 1.5 percent to 2.5 percent of sales. Investments of this type are expected to earn a 14% return. Assume a 365 day year

-What will be BTI's average investment in accounts receivable under the new standards?

• A) $3,430,479
• B) $3,240,741
• C) $2,280,738
• D) $2,746,854

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Definitions:

Mechanical Linkage

A series of rigid links connected with joints to form a closed chain, or an open chain, which can transmit motion and forces from one point to another.

Circuit Wiring

The interconnected path through which electrical current flows to perform a specific function.

Electrical Circuits

Networks of electrical components connected together to allow the flow of electrical current in a complete path.

Control Coils

Electromagnetic coils used in relay and contactor units to create a magnetic field that actuates the device.