Question:
Acme Inc. is considering shortening its credit terms from the current net 45 days to net 30 days. If this policy is adopted it is believed that the average collection period will move from the current 52 days to 36 days and that bad debts would decrease from 2.5% to 1% of sales. The shortened credit period will however reduce sales from their current level of 14,000 units to 12,500 units. Each unit sells for $62, with variable costs per unit of $45. Inventory is expected to decrease by $10,000. The rate of return is 12%. If the policy is adopted what is the net benefit (cost) to Acme?