Question

2. A company has been successful in reducing the amount of sales returns and allowances. At the same time, a credit card company reduced the credit card discount from 3% to 2%. What effect will these changes have on the company's net sales, all other things equal? a. Net sales will not change. b. Net sales will increase. c. Net sales will decrease. d. Either (b) or (c).

Answer 1

Answer:

B) Net sales will increase.

Explanation:

Net sales = total sales - sales returns and allowances

If the percentage of sales returns and allowances is reduced, then total net sales should increase. E.g. total sales are $100, sales returns and allowances are $4, then net sales = $96. If sales returns and allowances decreases to $2, then net sales will be $98.

Also, if the fee that credit cards charge decreases by 1%, net sales will also increase. Credit card fees decrease total sales, e.g. you sell $50 using credit card and the credit card company charges you $1.50, your total sales will be $48.50, but if the credit card company only charges $1, then total sales will be $49.