Question

why would manager care about total sales,total collections, % collected( =collections/sales) and total commission( formula is if % collected<35%, commission= $0, if %collected > 35%, commission= sales* 5%)

Answer 1

Managers always care about total sales command total collections, commission paid on collections for the following reasons :-

1. Every business has a operating cycle.

2. In the operating cycle every business offers credit period to the customers.

3. The credit terms of the operating cycle will affect the working capital requirement of the organisation.

4. There is any deviation from the operating cycle that is projected or budgeted by the organisation it will be a severe consequences regarding working capital of the organisation.

5. So, not to deviate from the projected operating cycle managers always care about

A. Amount of sales made

B. Credit period offered by the organisation

C. Commission paid for the collections

6. The three elements involved in performance of operating cycle. These three elements perform as per projected or budgeted then there will be no disturbance in the organisation's operating cycle.

7. If there is no deviations in operating cycle, then there will be e no no deviation in the working capital requirements. If there is any deviation in operating cycle then the manager has to look over about the the working capital of the organisation and has to think about the sources to fulfill those working capital requirements.

8. Due to maintaining of these working capital requirements and a proper performance of operating cycle manager always take care about revenues and expenses.

Operating cycle and collections from debtors was more important for the organisation to maintain good working capital requirements and not to disturb the production cycle.

These are all information required to solve the given question.

I hope, all the above given information and explanations are useful and helpful to you.

Thank you.