Problem 28-16 Credit Policy The Silver Spokes Bicycle Shop has decided to offer
ID: 2778065 • Letter: P
Question
Problem 28-16 Credit Policy
The Silver Spokes Bicycle Shop has decided to offer credit to its customers during the spring selling season. Sales are expected to be 600 bicycles. The average cost to the shop of a bicycle is $525. The owner knows that only 96 percent of the customers will be able to make their payments. To identify the remaining 4 percent, the company is considering subscribing to a credit agency. The initial charge for this service is $750, with an additional charge of $10 per individual report.
What are the company's net savings from subscribing to the credit reports? (Do not round intermediate calculations.)
The Silver Spokes Bicycle Shop has decided to offer credit to its customers during the spring selling season. Sales are expected to be 600 bicycles. The average cost to the shop of a bicycle is $525. The owner knows that only 96 percent of the customers will be able to make their payments. To identify the remaining 4 percent, the company is considering subscribing to a credit agency. The initial charge for this service is $750, with an additional charge of $10 per individual report.
Explanation / Answer
Silver spokes Bicycles Sales 600 nos Payments made by 576 No to bepossible bad debt cases 24 Initial Charge for Credit rating Agency $ 750 Additional charges for600 reports $(@$10/report) 6,000 Total cost of the subscription $ 6,750 Saving from not selling to bad credit risks( @$5250 for 24 case) in $ 12,600 Company's net saving $ 5,850 As the saving is positive , the company should subscribe to the agency
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