Financial Account Receivable Formula
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Additional profit
(proposed plan sales – current plan sales) X sale price
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Cost of marginal investment under A/R
(variable cost X Proposed sales) / (days in year / proposed collection days)
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(-) average investment under current plan
(variable cost X current sales) / (days in year / current collection days)
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marginal investment in A/R
(investment under the proposed plan- investment undercurrent plan) X opportunity cost
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cost of marginal bad debts
-bad debts under the proposed plan
(proposed sales X sales price X proposed bad debt percentage)
-bad debt under the current plan
(current sales X sales price X current bad debt percentage)
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Cost of marginal debts
(bad debts under the proposed plan- bad debt under the current plan)
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Net profit from implementing the proposed plan
(additional profit contribution - cost of marginal investment under A/R – cost of marginal bad debt)
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Positive is profit (good plan)-implement
Negative is loss (bad plan)- not implement
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