Total variable cost of annual sales under present

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Unformatted text preview: age collection period Turnover of accounts receivable The total variable cost of annual sales under the present and proposed plans can be found as follows, using the variable cost per unit of $6. Total variable cost of annual sales Under present plan: ($6 Under proposed plan: ($6 60,000 units) 63,000 units) $360,000 $378,000 The turnover of accounts receivable is the number of times each year that the firm’s accounts receivable are actually turned into cash. It is found by dividing the average collection period into 360 (the number of days assumed in a year). Turnover of accounts receivable Under present plan: 360 30 12 Under present plan: 360 45 8 By substituting the cost and turnover data just calculated into Equation 14.9 for each case, we get the following average investments in accounts receivable: Average investment in accounts receivable Under present plan: $360,000 12 Under proposed plan: $378,000 8 $30,000 $47,250 614 PART 5 Short-Term Financial Decisions The marginal investment in accounts receivable and its cost are calculated as follows: Cost of marginal investment in accounts receivable Average investment under propo...
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