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Ripley Shirt Company sells on credit and manages its own receivables Average experience for the past 3 years has been as follows: Cash Credit Total Sales

Ripley Shirt Company sells on credit and manages its own receivables. Average experience for the past 3 years has been as follows:

 

Cash

Credit

Total

Sales

$300,000

$300,000

$600,000

Cost of goods sold

165,000

165,000

330,000

Uncollectible-account expense

10,000

10,000

Other expenses

84,000

84,000

168,000

John Ripley, the owner, is considering whether to accept bankcards (VISA, MasterCard). Ripley expects total sales to increase by 10% but cash sales to remain unchanged. If Ripley switches to bankcards, the business can save $8,000 on other expenses, but VISA and MasterCard charge 2% on bankcard sales. Ripley figures that the increase in sales will be due to the increased volume of bankcard sales.

Required

Should Ripley Shirt Company start selling on bankcards? Show the computations of net income under the present plan and under the bankcard plan. (Challenge)

Jun 18 2020 View more View Less

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