The Swarup Committee recommends that insurance agents or advisors be disallowed from loading commission on to the policyholder's premium. The agent's advice is biased in favour of the insurance company rather than the buyer to earn the commissions. India's life insurance industry collected annual premiums of over Rs. 2 trillion through sale of new policies and TI fal
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- In the United States, many business firms in the cigarette industry joined with the government in a settlement of liability claims. Under the tentative agreement, the industry would curb advertising and pay the equivalent of about $15 billion per year (for smoking-related state Medicaid expenses) in exchange for protection against smoker lawsuits. a) Before the settlement, a leading cigarette manufacturer estimated its marginal cost at $1.00 per pack and its elasticity of demand at -2. What is its optimal price? The firm’s share of the industry payment (based on its historic market share) will raise its average total cost per pack by $.60. What effect will this have on its optimal price? b) A marketing manager suggests that the firm should offer price discounts to the company’s longterm, older, most-loyal (addicted?) customers. Do you agree? Explain carefully. c) In the past, anti-smoking information campaigns have had some limited success in reducing smoking. What price reaction…Peanut Inc. is evaluating whether to change its credit terms from 2/10 net 30 to 3/10 net 30. At present, 50% of Peanut's sales are paid at day 10. Regardless of the credit terms, half of the customers who do not take the discount are expected to pay on day 30 whereas the remainder will pay 15 days late (no bad debts exist). But as a result of the higher cash discount offered with the new terms, sales are expected to increase from 757,000 to 801,000 per year. Peanut's variable cost ratio is 75% and its cost of funds is 8.7%. All production costs are paid on the day of the sale. Should the change be made?Bluegrass Distilleries, Inc. refuses to extend credit to any wholesale distributors who have a history of being delinquent in replaying credit extended to them. This policy results in lost sales of $10 million annually. Based on past experiance with these types of customers, the firm estimates that the average collection period would be a 90 days and that the bad-debt loss ratio would be 6 percent. The firm's variable cost ratio is 0.80, making its profit contribution ratio 0.20. Bluegrass Distilleries' required pretax return (i.e., opporunity cost) on receivables investments is 20 percent. When converting form annual to daily or vice versa, assume there is a 365 days per year. If Bluegrass Disilleries extends credit to these (previously delinquent) customers, determine the incrase in the investment in receivables.
- XYZ is evaluating whether to loosen its credit terms from 2/10, net 30 to 3/10, net 30. At present, 50 percent of XYZ'S sales are paid on Day 10, whereas, under the new terms, 60% of sales will be paid on Day 10. Regardless of the credit terms, half of the customers who do not take the discount are expected to pay on Day 30, whereas the remainder will pay 15 days late (no bad debts exist). But, as a result of the higher cash discount offered with the new terms, sales are expected to increase from $360,000 to $396,000 per year. XYZ'S variable costratio is 80% and its cost of funds is 9%. All production costs are paid on the day of the sale. Should XYZ change its credit terms? Show your computations and prove your answer.Stellar, Inc. is a distributor of prepaid telephone cards to customers in its convenience stores. When Stellar sells the cards, it then pays the telecommunications company, TeleExpress, less a commission of 20 percent of the selling price to customers. Stellar receives $3,800 in cards in January 2020. Stellar sold 55% of the cards in February, 30% in March, and 15% in April. It costs TeleExpress $2,900 to provide the telephone service on the cards sold by Stellar. Indicate how much income Stellar should recognize in January, February, March, and April.Sonata Company is considering changing its credit terms from 2/15, net 30 to 3/10, net 30 in order to speed collections. At present, 40 percent of Sonata Company’s customers take the 2 percent discount. Under the new term, discount customers are expected to rise to 50 percent. Regardless of the credit terms, half of the customers who do not take the discount are expected to pay on time, whereas the remainder will pay 10 days late. The change does not involve a relaxation of credit standards; therefore bad debt losses are not expected to rise above their present 2 percent level. However, the more generous cash discount terms are expected to increase sales from 2 million to 2.6 million per year. Santa Company’s variable cost ratio is 75 percent, the interest rate on funds invested in accounts receivable is 9 per-cent, and the firm’s income tax rate is 40 percent. (Adapted Comprehensive Reviewer in MAS 2010 Edition, Apolinario D. Bobadilla) Determine the following: The days sales…
- Axis Wells and Excavation (AWE) currently generates $198,000 in annual credit sales. AWE sells on terms of net 50, and its accounts receivable balance averages $11,000. AWE is considering a new credit policy with terms of net 25. Under the new policy, sales will decrease to $189,000, and accounts receivable will average $12,600. Compute the days sales outstanding (DSO) under the existing policy and the proposed policy. Assume there are 360 days in a year. Round your answers to the nearest whole number. DSOExisting: days DSONew: daysKnights Technologies is considering changing its credit terms from 2/15, n/30 to 3/10, n/30 to speed collections. At present 40% of Knights paying customers take the 2% discount. Under the new terms, discount customers are expected to rise to 50%. Regardless of the credit terms, half of the customers who would not take discount are expected to pay on time, whereas the remainder will pay 10 days late. The change does not involve a relaxation of the credit standards; therefore, bad debts losses are not expected to rise above their present 2% level. However, the more generous cash discount terms are expected to increase sales from P2 million to P2.6 million per year. Knights variable cost ratio is 75%, the interest rate on funds invested in accounts receivable with production and credit sales is 9% and the firms marginal tax rate is 40%. All costs associated with production and credit sales are paid in the day of sales. What is the DSO before and after the change? Calculate the cost of…Knights Technologies is considering changing its credit terms from 2/15, n/30 to 3/10, n/30 to speed collections. At present 40% of Knights paying customers take the 2% discount. Under the new terms, discount customers are expected to rise to 50%. Regardless of the credit terms, half of the customers who would not take discount are expected to pay on time, whereas the remainder will pay 10 days late. The change does not involve a relaxation of the credit standards; therefore, bad debts losses are not expected to rise above their present 2% level. However, the more generous cash discount terms are expected to increase sales from P2 million to P2.6 million per year. Knights variable cost ratio is 75%, the interest rate on funds invested in accounts receivable with production and credit sales is 9% and the firms marginal tax rate is 40%. All costs associated with production and credit sales are paid in the day of sales. What is the DSO before and after the change? Calculate the cost of…
- DBA Company is considering changing its credit terms from 2/15, net 30 to 3/10, net 30 in order to speed collections. At present, 40% of Sonata Company‘s customers take the 2% discount. Under the new term, discount customers are expected to rise to 50%. Regardless of the credit terms, half of the customers who do not take the discount are expected to pay on time, whereas the remainder will pay 10 days late. The change does not involve a relaxation of credit standards; therefore bad debt losses are not expected to rise above their present 2% level. However, the more generous cash discount terms are expected to increase sales from P2 million to P2.6 million per year. DBA’s variable cost ratio is 75%, the interest rate on funds invested in accounts receivable is 9 %, and the firm’s income tax rate is 40%. Required: What is the days sales outstanding (DSO) before the change of credit policy? What is the days sales outstanding (DSO) after the change of credit policy? How much is the…Stubs-R-Us is a local event ticket broker. Last year, the company sold 760,000 tickets with an average commission of $10. Because of the general economic climate, Stubs expects ticket volume to decline by 20 percent. In addition, employees at a local insurance company headquarters accounted for 5 percent of Stubs’ volume. The headquarters relocated to another state and all the employees closed their accounts. Offsetting these factors is the observation that the average commission per sale is likely to increase by 15 percent because the average ticket prices are expected to be larger in the coming year. Required: Estimate commission revenues for Stubs-R-Us for the coming year.Rose Company currently uses maximum trade credit by not taking discounts on its purchases. The standard industry credit terms offered by all its suppliers are 2/10 net 30 days, and the firm pays on time. The new CFO is considering borrowing from its bank, using short-term notes payable, and then taking discounts. The firm wants to determine the effect of this policy change on its net income. Its net purchases are P11,760 per day, using a 365-day year. The interest rate on the notes payable is 10%, and the tax rate is 40%. If the firm implements the plan, what is the expected change in net income? P32,964 P40,370 P36,526 P34,699 P38,448