As treasurer of the Universal Bed Corporation, Aristotle Procrustes is worried about his bad debt ratio,...

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Finance

As treasurer of the Universal Bed Corporation, AristotleProcrustes is worried about his bad debt ratio, which is currentlyrunning at 7.0%. He believes that imposing a more stringent creditpolicy might reduce sales by 5% and reduce the bad debt ratio to5.0%. Assume current sales are $100.
Expected Profit?
If the cost of goods sold is 70% of the selling price, what isthe expected profit on the more stringent credit policy?(Do not round intermediate calculations. Round your answerto 2 decimal places.)
Expected Profit?

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3.6 Ratings (533 Votes)

Formula		Current policy	Proposed policy
Sales reduce by 5% under proposed policy	Sales	100.00	95.00
7%*Sales; 5% of Sales	Less: bad debts	7.00	4.75
70%*Sales	Less: COGS	70.00	66.50
(Sales-bad debts-COGS)	Profit	23.00	23.75

Expected profit under current policy = $23

Expected profit under proposed policy = $23.75

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As treasurer of the Universal Bed Corporation, AristotleProcrustes is worried about his bad debt ratio, which is currentlyrunning at 7.0%. He believes that imposing a more stringent creditpolicy might reduce sales by 5% and reduce the bad debt ratio to5.0%. Assume current sales are $100.Expected Profit?If the cost of goods sold is 70% of the selling price, what isthe expected profit on the more stringent credit policy?(Do not round intermediate calculations. Round your answerto 2 decimal places.)Expected Profit?