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so how do we judge it whether it is variable or not sir by seeing the question?
sir i didnt understand the purchase calculation.It is said that he has taken one and half months credit from account payable. So payment in jan the purchase has to be done in 2nd half of nov til the end of dec rite sir? i did not understand this concept 🙁
sir new sales revenue is 600,000 rite? so average of 600,000 is 300,000 rite sir?
sir i did not understand still how they got 3,000,000 :(..As you said sales revenue is not the same as receivables but in the question they have not given how much is the receivables
solution :
The change in credit policy is justifiable if the rate of return on the additional investment in working capital would exceed 20%
Extra profit
contribution/sales ratio 15%
increase in sales revenue $600,000
increase in contribution and profit $90,000
(a) Extra investment, if all accounts receivables take two months credit $
Average accounts receivables after the sales increase (2/12 x $3,000,000) 500,000
Less current average accounts receivables (1/12 x $2,400,000) 200,000
Increase in account receivables 300,000
Increase in inventories 100,000
_______
400,000
less increase in account payable 20,000
Net increase in working capital 380,000Return on investment $90,000
________
$380,000
= 23.7%Yes sir i have watched the lecture.
(a) Extra investment, if all accounts receivables take two months creditAverage account receivable after the sales increase (2/12 x $3,000,000 ) 500,000
Doubts
1.) is why have the taken average account receivable?
2.) increase in sales revenue is 600,000 so average of 600,000 should be 300,000sir what about make or buy decision, outsourcing, further processing decision and shut down decision topics?where can i find the lecture for these topics
no sir..i have finished decision making techniques that is all the five techniques i have gone through and then i tried solving from practice kit..The problems in the practice kit are little bit harder