Question

3 8 Create an input table and formulas to calculate your answer. 24 change in All daily cost of fianding 12 25 493 26 5,918 cost savings cost of MRP 27 10,000 28 $ (4,082) change in profit 29 30 Garret has decided not to proceed with the MRP system. Instead, it is considering offering a discount to speed collections. The discount would reduce contribution margin by $5,000 per year. The discount would decrease the average collection period by 3 days How much would profit increase or decrease If Garret offers the discount? 3 9 Create an input table and formulas to calculate your answer. 31 32 33 34 35 36 change in 37 38 39 40 41 42 43 44 45 46 47 48 Sheet

Answer 1

Change in AII is 12 days and Daily cost of funding is given as 493. In that scenario total cost of savings should be 12×493=5916.

However, in the question ita mentioned as 5918 and hence considering that daily cost of funding should be 5918÷12=493.17

Annual saving if discount is offered can be calculated as under:

3 days × 493.17×12 months=17754

Where as cost of discount is 5000

Hence net savings will be 12754.

Note: this is nice question. if few more details can be added in questions like this, contribution margin, break even discount, pv ratio etc can be calculated.