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Eboy Corporation has $443,000 in accounts receivable as of right now. Credit sales of$3,544,000 over a full year (365 days) were required to reach this level. The company offers loan terms of net 30 to its clients. However, the company is thinking about switching from net 30 to 2/10 net 30 as a way to improve its cash flow situation and keep up with its competitors. The goal is to increase receivables collections quickly in order to boost the company's cash flows. Eboy wants to reach a turnover of 12.0 in its accounts receivable. The company uses a raw material that is now used in 1,450 units annually. The variable cost of this raw material is $2,600 per unit, and each finished good costs$4,200 when sold on a net 30-day basis. The 2% cash discount is expected to be accepted by 70% of the company's clients, and as a result, sales of the finished product will rise by 50 units annually. Opportunity cost for the company's money invested in accounts receivable is 12.5%. Use the variable cost of the sold product rather than the sale price to analyse the investment in accounts receivable because the variable cost is a better measure of the firm's investment. Make a spreadsheet to determine whether the company should launch the suggested cash savings. What would you suggest? Be careful to compute cost of the cash discount.
Chemy Corporation produces three products in a monthly joint production process. During the first stage of the process liquids and chemicals costing are heated and three different compounds emerge: 3,000 gallons of Molecue worth per gallon are created from the steam; 10,000 gallons of Borphue worth are drained from the tank; and 1,000 gallons of the tank residue, labeled as Polygard, are sold as fertilizer for per gallon. Before Molecue is sold, it must be purified in another process that costs , and before the Polygard fertilizer is sold, it must be bottled at a price of per gallon.
a. What is the profitability of the joint process?