Question

Question 5 [45]

Gentronics (Pty) Ltd manufactures and sells a rechargeable battery-operated lamp. The

company sells the lamps both for cash and on credit. Company management is

contemplating relaxing its existing credit standards in order to boost sales and profits.

The company provided you with the following information relating to this lamp:

 The current selling price is R150.00 per unit.

 Total sales for 2018 were 80 000 units.

The variable cost per unit is R80.00.

 The total fixed cost is R1 200 000.

 Current credit terms are 30 days from date of purchase.

 Current bad debts are 1% of sales.

 Owing to tough business conditions the company is considering relaxing its current credit

standards and in doing so, anticipates the following to happen as a result:

o An expected increase of 8% in current total sales

o An increase in the average collection period to 40 days

o An expected increase of 2% in bad debts

 The company’s opportunity cost of tying up funds in trade receivables is 15%.

 A trading year consists of 365 days.

Required

Show all calculations rounded off to the closest rand or nearest whole number.

Use the information provided by Gentronics in order to determine the impact of the proposed

relaxation in credit standards on profits.

Question 5 [45]

Gentronics (Pty) Ltd manufactures and sells a rechargeable battery-operated lamp. The

company sells the lamps both for cash and on credit. Company management is

contemplating relaxing its existing credit standards in order to boost sales and profits.

The company provided you with the following information relating to this lamp:

 The current selling price is R150.00 per unit.

 Total sales for 2018 were 80 000 units.

The variable cost per unit is R80.00.

 The total fixed cost is R1 200 000.

 Current credit terms are 30 days from date of purchase.

 Current bad debts are 1% of sales.

 Owing to tough business conditions the company is considering relaxing its current credit

standards and in doing so, anticipates the following to happen as a result:

o An expected increase of 8% in current total sales

o An increase in the average collection period to 40 days

o An expected increase of 2% in bad debts

 The company’s opportunity cost of tying up funds in trade receivables is 15%.

 A trading year consists of 365 days.

Required

Show all calculations rounded off to the closest rand or nearest whole number.

Use the information provided by Gentronics in order to determine the impact of the proposed

relaxation in credit standards on profits.

Question 5 [45]

Gentronics (Pty) Ltd manufactures and sells a rechargeable battery-operated lamp. The

company sells the lamps both for cash and on credit. Company management is

contemplating relaxing its existing credit standards in order to boost sales and profits.

The company provided you with the following information relating to this lamp:

 The current selling price is R150.00 per unit.

 Total sales for 2018 were 80 000 units.

The variable cost per unit is R80.00.

 The total fixed cost is R1 200 000.

 Current credit terms are 30 days from date of purchase.

 Current bad debts are 1% of sales.

 Owing to tough business conditions the company is considering relaxing its current credit

standards and in doing so, anticipates the following to happen as a result:

o An expected increase of 8% in current total sales

o An increase in the average collection period to 40 days

o An expected increase of 2% in bad debts

 The company’s opportunity cost of tying up funds in trade receivables is 15%.

 A trading year consists of 365 days.

Required

Show all calculations rounded off to the closest rand or nearest whole number.

Use the information provided by Gentronics in order to determine the impact of the proposed

relaxation in credit standards on profits.

Question 5 [45]

Gentronics (Pty) Ltd manufactures and sells a rechargeable battery-operated lamp. The

company sells the lamps both for cash and on credit. Company management is

contemplating relaxing its existing credit standards in order to boost sales and profits.

The company provided you with the following information relating to this lamp:

 The current selling price is R150.00 per unit.

 Total sales for 2018 were 80 000 units.

The variable cost per unit is R80.00.

 The total fixed cost is R1 200 000.

 Current credit terms are 30 days from date of purchase.

 Current bad debts are 1% of sales.

 Owing to tough business conditions the company is considering relaxing its current credit

standards and in doing so, anticipates the following to happen as a result:

o An expected increase of 8% in current total sales

o An increase in the average collection period to 40 days

o An expected increase of 2% in bad debts

 The company’s opportunity cost of tying up funds in trade receivables is 15%.

 A trading year consists of 365 days.

Required

Show all calculations rounded off to the closest rand or nearest whole number.

Use the information provided by Gentronics in order to determine the impact of the proposed

relaxation in credit standards on profits.

Question 5 [45]

Gentronics (Pty) Ltd manufactures and sells a rechargeable battery-operated lamp. The

company sells the lamps both for cash and on credit. Company management is

contemplating relaxing its existing credit standards in order to boost sales and profits.

The company provided you with the following information relating to this lamp:

 The current selling price is R150.00 per unit.

 Total sales for 2018 were 80 000 units.

The variable cost per unit is R80.00.

 The total fixed cost is R1 200 000.

 Current credit terms are 30 days from date of purchase.

 Current bad debts are 1% of sales.

 Owing to tough business conditions the company is considering relaxing its current credit

standards and in doing so, anticipates the following to happen as a result:

o An expected increase of 8% in current total sales

o An increase in the average collection period to 40 days

o An expected increase of 2% in bad debts

 The company’s opportunity cost of tying up funds in trade receivables is 15%.

 A trading year consists of 365 days.

Required

Show all calculations rounded off to the closest rand or nearest whole number.

Use the information provided by Gentronics in order to determine the impact of the proposed

relaxation in credit standards on profits.

Question 5 [45]

Gentronics (Pty) Ltd manufactures and sells a rechargeable battery-operated lamp. The

company sells the lamps both for cash and on credit. Company management is

contemplating relaxing its existing credit standards in order to boost sales and profits.

The company provided you with the following information relating to this lamp:

 The current selling price is R150.00 per unit.

 Total sales for 2018 were 80 000 units.

The variable cost per unit is R80.00.

 The total fixed cost is R1 200 000.

 Current credit terms are 30 days from date of purchase.

 Current bad debts are 1% of sales.

 Owing to tough business conditions the company is considering relaxing its current credit

standards and in doing so, anticipates the following to happen as a result:

o An expected increase of 8% in current total sales

o An increase in the average collection period to 40 days

o An expected increase of 2% in bad debts

 The company’s opportunity cost of tying up funds in trade receivables is 15%.

 A trading year consists of 365 days.

Required

Show all calculations rounded off to the closest rand or nearest whole number.

Use the information provided by Gentronics in order to determine the impact of the proposed

relaxation in credit standards on profits.

Question 5 [45]

Gentronics (Pty) Ltd manufactures and sells a rechargeable battery-operated lamp. The

company sells the lamps both for cash and on credit. Company management is

contemplating relaxing its existing credit standards in order to boost sales and profits.

The company provided you with the following information relating to this lamp:

 The current selling price is R150.00 per unit.

 Total sales for 2018 were 80 000 units.

The variable cost per unit is R80.00.

 The total fixed cost is R1 200 000.

 Current credit terms are 30 days from date of purchase.

 Current bad debts are 1% of sales.

 Owing to tough business conditions the company is considering relaxing its current credit

standards and in doing so, anticipates the following to happen as a result:

o An expected increase of 8% in current total sales

o An increase in the average collection period to 40 days

o An expected increase of 2% in bad debts

 The company’s opportunity cost of tying up funds in trade receivables is 15%.

 A trading year consists of 365 days.

Required

Show all calculations rounded off to the closest rand or nearest whole number.

Use the information provided by Gentronics in order to determine the impact of the proposed

relaxation in credit standards on profits.

Question 5 [45]

Gentronics (Pty) Ltd manufactures and sells a rechargeable battery-operated lamp. The

company sells the lamps both for cash and on credit. Company management is

contemplating relaxing its existing credit standards in order to boost sales and profits.

The company provided you with the following information relating to this lamp:

 The current selling price is R150.00 per unit.

 Total sales for 2018 were 80 000 units.

The variable cost per unit is R80.00.

 The total fixed cost is R1 200 000.

 Current credit terms are 30 days from date of purchase.

 Current bad debts are 1% of sales.

 Owing to tough business conditions the company is considering relaxing its current credit

standards and in doing so, anticipates the following to happen as a result:

o An expected increase of 8% in current total sales

o An increase in the average collection period to 40 days

o An expected increase of 2% in bad debts

 The company’s opportunity cost of tying up funds in trade receivables is 15%.

 A trading year consists of 365 days.

Required

Show all calculations rounded off to the closest rand or nearest whole number.

Use the information provided by Gentronics in order to determine the impact of the proposed

relaxation in credit standards on profits.

Answer 1