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Jan and Roy Falcon own Club Fab From its inception

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Jan and Roy Falcon own Club Fab. From its inception, Club Fab has sold merchandise on
either a cash or credit basis, but no credit cards have been accepted. During the past several
months, the Falcons have begun to question their credit-sales policies. First, they have lost
some sales because of their refusal to accept credit cards. Second, representatives of two
metropolitan banks have convinced them to accept their national credit cards. One bank, City
National Bank, has stated that (1) its credit card fee is 4% and (2) it pays the retailer 96 cents
on each $1 of sales within 3 days of receiving the credit card billings.The Falcons decide that
they should determine the cost of carrying their own credit sales. From the accounting records
of the past 3 years, they accumulate these data:Credit and collection expenses as a percentage
of net credit sales are as follows: uncollectible accounts 1.6%, billing and mailing costs .5%, and
credit investigation fee on new customers .2%.Jan and Roy also determine that the average
accounts receivable balance outstanding during the year is 5% of net credit sales. The Falcons
estimate that they could earn an average of 10% annually on cash invested in other business
opportunities.InstructionsWith the class divided into groups, answer the following.(a) Prepare a
tabulation for each year showing total credit and collection expenses in dollars and as a
percentage of net credit sales.(b) Determine the net credit and collection expenses in dollars
and as a percentage of sales after considering the revenue not earned from other investment
opportunities.(c) Discuss both the financial and nonfinancial factors that are relevant to the
decision.View Solution:
Jan and Roy Falcon own Club Fab From its inception

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