CORRECT ANSWER B. FOSTER SHOULD IMPLEMENT PLAN B AS THIS PLAN R...
155.
Correct answer b. Foster should implement Plan B as this plan results in the highest gross
profit as shown below.
Plan B: = Gross profit – Bad debt/Collection costs – Incremental cost of capital
= ($250,000 x .2) – ($3,000 + $2,000) – [($90,000 - $60,000) x .15]
= $50,000 - $5,000 - $4,500
= $40,500
Results for other plans: Plan A $30,000; Plan C $40,000; Plan D $36,500