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15 17250 2588 cost of marginal bad debts bad debts

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Unformatted text preview: 0 8 $378,000 8 $47,250 Average investment under present plan: $6 60,000 12 $360,000 12 30,000 Marginal investment in A/R $17,250 Cost of marginal investment in A/R (0.15 $17,250) ($ 2,588) Cost of marginal bad debts Bad debts under proposed plan (0.02 Bad debts under present plan (0.01 $10 $10 63,000) 60,000) Cost of marginal bad debts Net profit from implementation of proposed plan $12,600 6,000 ($ 6,600) $ 2,812 aThe denominators 8 and 12 in the calculation of the average investment in accounts receivable under the proposed and present plans are the accounts receivable turnovers for each of these plans (360/45 8 and 360/30 12). bution from sales, and the return would have been from reductions in the cost of the investment in accounts receivable and in the cost of bad debts. Another application of this procedure is demonstrated later in the chapter. Managing International Credit Credit management is difficult enough for managers of purely domestic companies, and these tasks become much more complex for com...
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