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Lipa Company currently has annual sales of P2000000 Its average collection period is 40 days and bad debts are 5 percent of sales The credit and collection manager is considering instituting

Lipa Company currently has annual sales of P2,000,000. Its average collection period is 40 days, and bad debts are 5 percent of sales. The credit and collection manager is considering instituting a stricter collection policy, whereby bad debts would be reduced to 2 percent of total sales, and the average collection period would fall to 30 days. However, sales would also fall by an estimated P250,000 annually. Variable costs are 60 percent of sales and the cost of carrying receivables is 12 percent. Assume a tax rate of 40 percent and 360 days per year. What would be the incremental investment in receivables if the change were made?
A. P(16,667)            C. P(48,611)
B. P(27,167)            D. P(45,833)

Jun 20 2021 View more View Less

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