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the sales revenue in a company was $2 million and its receivable were 5% of sales.
The company wishes to have an allowance for receivable of 4% of receivable,which would make the allowance one-third higher than the current allowance.
how will the profit be affected by the change in allowance?
A)profit will be reduced by $1000
B)profit will be increase by $1000
C)profit will be reduced by $1333
D)profit will be increase by $1333$2 million*5%=$100,000
allowance=4%*100,000=4000
1/3 higher than current allowance
1/3*4000=1333my answer is C but the answer sheet is A
why how to get 1000? which part i calculation wrongly?
please help me thanks
4000-4/3
x-1
4x/3=4000
4x=12000
x=3000
so the allowance was 3000$ and it increased to 4000$ so there is an increase in allowance and that decrease profit
answer:A
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