Competitive Mesh Shirts Is Considering a Plan to Ease Its

question 78

Multiple Choice

Competitive Mesh Shirts is considering a plan to ease its credit terms in order to generate greater revenues. Last year, Competitive had sales of 1,000,000 units at a price and variable cost of $20 and $15, respectively. Its current average collection period is 20 days and its percentage of bad debt expense is 2% while it required return on investment is 10%. If Competitive were to ease its credit terms, the firm anticipates that its sales would increase to 1,200,000 units without a change in price or variable costs. However, the average collection period is expected to increase to 30 days and bad debt expense is expected to increase to 3%.
-What is Competitive's expected increase in bad debt expense?

• A) $720,000
• B) $400,000
• C) $320,000
• D) there is not enough information given

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