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Big Thompson Industries BTI currently produces and sells 50000 units of a motor

Big Thompson Industries (BTI) currently produces and sells 50,000 units of a motor relay used in high-end electronics. All sales are on credit, for a price of $750 per unit to all customers. These motor relays incur $525 in variable costs and $3,000,000 in fixed costs per year. With current credit standards, BTI’s average collection period is 30 days. Managers are considering a relaxation in standards, and forecast a 6 percent increase in sales, along with an increase in the average collection period to 45 days. Additionally, bad debt expense is expected to increase from 1.5 percent to 2.5 percent of sales. Investments of this type are expected to earn a 14% return. Assume a 365 day year

 

44.With the current standards, what is BTI’s average investment in receivables?

a.$1,080,247

b.$2,157,534

c.$2,746,854

d.$3,240,741

 

 

 

45.What is BTI’s contribution margin?

a.$750 per unit

b.$525 per unit

c.$225 per unit

d.$1, 275 per unit

 

 

 

46.Refer to Big Thompson. What is the forecasted increase in profits from increased sales if credit standards are changed?

a.$2,250,000

b.$450,000

c.$1,575,000

d.$675,000

 

 

 

47.What will be BTI’s average investment in accounts receivable under the new standards?

a.$3,430,479

b.$3,240,741

c.$2,280,738

d.$2,746,854

 

 

 

48.Refer to Big Thompson. What is the cost of the marginal investment in accounts receivable?

a.$480,267

b.$302,055

c.$274,185

d.$178,212

 

 

 

49.Refer to Big Thompson. What is the marginal cost of bad debt expense if the new standards are adopted?

a.$993,750

b.$937,500

c.$562,500

d.$431,250

 

 

 

50.Should BTI relax its credit standards?

a.Yes, the forecast is for a $496,788 net gain.

b.Yes, the forecast is for a $65,538 net gain.

c.No, the forecast predicts a $243,750 net loss.

d.No, the forecast predicts a $609,462 net loss.

 

 

 

51.Between 1981 and 2002, the median level of current assets as a portion of total assets for large firms has

a.decreased.

b.remained the same.

c.increased.

d.not been studied.

 

 

 

52.A firms’ operating cycle measures

a.the time that elapses from the firm’s receipt of raw materials until it pays for those materials.

b.the time that elapses from the payment of raw materials until the firm is paid for its finished product.

c.the time that elapses from the firm’s receipt of raw materials to begin production to its collection of cash from the sale of the finished product.

d.none of the above.

 

 

 

53.The operating cycle is composed of

a.the average age of a firm’s inventory.

b.the average collection period.

c.both a and b.

d.none of the above.

Feb 13 2020 View more View Less

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