Purchase Solution

The Kranberry kids Kompany is in the volatile garment busine

Not what you're looking for?

Ask Custom Question

The Kranberry kids Kompany is in the volatile garment business. The firm has annual revenues of $250 million and operates with a 30% gross margin on sales. Bad debt losses average 3% of revenues. Kramberry is contemplating an easing of its credit policy in an attempt to increase sales. The loosening would involve accepting a lower-quality customer for credit sales. It is estimated that sales could be increased by $20 million a year in this manner with an increase in inventory investment of $2,000,000. Opportunity costs for inventory is 15%. However, the collections department estimates that bad debt losses on the new business would rum four times the normal level, and that internal collection efforts would cost an additional $ 1 million a year.
Show computations to explain if the change in policy should be made.

Purchase this Solution
Solution Summary

The solution provides full calculations and explanations for the problem.

Solution Preview

Bad debt loss rate = 3% x 4 = 12%
Margin on added revenue actually collected = $20M x .88 x .30 = $5.3M

Bad ...

Purchase this Solution
Free BrainMass Quizzes
Understanding the Accounting Equation

These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.

Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

Writing Business Plans

This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.

Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

Operations Management

This quiz tests a student's knowledge about Operations Management

View More Free Quizzes
Related BrainMass Solutions

  • Retailers, age distribution, trends, lifestyles

    Retailers such as garment and clothing stores would be most affected by changes in the age distribution of populations because the products they carry in their stores are directly linked to the population distribution in terms of age.

  • Case Study: Employment Law

    I think that the four factors methodology that is utilized in making the decision as to whether or not a relationship of employment exists between individuals and/or organizations, is one of the best methods by which to make the determination as to whether

  • Facets of Disordered Behavior

    Since serotonin is produced in the brain for activity, it helps these students when they act, move, dance, or participate in these types of lessons. The teacher interviewed uses drama and art lessons almost daily.

  • Calculating own price and cross price elasticity of demand

    Lean is a catalog retailer of a wide variety of sporting goods and recreational products. Although the market response to the company's spring catalog was generally good, sales of B.B.

  • Factors affecting supply, demand, and prices

    I have identified the garment industry: THe factors which have affected the garment industry are as follows: 1. Availaibility and price of raw material 2. Government policy like taxes and duties on garment industry 3.

  • Garment industry employment

    209029 Garment industry employment Why Americans that have been working in the garment industry have a hard time finding jobs? Right now the economy is hurting and people are losing jobs.

  • Economics for the Global Manager

    They will be produced in the garment factories situated in India. They have the option to make it from Bangladesh too. Who purchases them? They are purchased by Women wanting to be more fashionable.

  • Child Development

    When parents were in difficult divorce situations, making the adults' lives more volatile and stressful, I found it to be more challenging to facilitate the boding because parents were not as calm and open.

  • market structure

    How do you know the firm falls into this type of market structure? The market structure for my firm, ie, a garment manufacturer is monopolistically competitive.

View More Related Solutions