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Unformatted text preview: ge? What other information
would be helpful in your analysis? LG4 14–8 Accounts receivable changes with bad debts A firm is evaluating an accounts
receivable change that would increase bad debts from 2% to 4% of sales. Sales
are currently 50,000 units, the selling price is $20 per unit, and the variable cost
per unit is $15. As a result of the proposed change, sales are forecast to increase
to 60,000 units.
a. What are bad debts in dollars currently and under the proposed change?
b. Calculate the cost of the marginal bad debts to the firm.
c. Ignoring the additional profit contribution from increased sales, if the proposed change saves $3,500 and causes no change in the average investment in
accounts receivable, would you recommend it? Explain.
d. Considering all changes in costs and benefits, would you recommend the proposed change? Explain.
e. Compare and discuss your answers in parts c and d. CHAPTER 14 Working Capital and Current Assets Management 631 14–9 Relaxation of credit standards Lewis Enterprises is considering relaxing it...
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