Answer:
A loss of about $10,000
Explanation:
Calculation for the expected change in pre tax profit
b.A loss of about $10,000
Current Accout Receivable balance 3,350,000
Average collection period 67
Daily credit sales 50,000
(3,350,000÷67)
New Average Collection Period 58
New Account Receivable balance2,900,000
($50,000×58)
Return 0.14
Change in Account receivable 450,000
(3,350,000-2,900,000)
Value of released Account receivable 63,000
(0.14×450,000)
Total Days365
Total Annual Credit Sales 18,250,000
Taking discount 0.40
(18,250,000×0.40) 7,300,000
Discount Percentage0.01
(7,300,000×0.01) 73,000
Total Cost 73,000
Gain-Cost(63,000-73,000)-10,000
Therefore the expected change in pre tax profit will be a loss of 10,000
