Martin Optical has found that 2% of credit sales turn into bad debts and it costs the company $2,000 in administration expenses per year to manage the bad debts.Martin Optical obtains $30,000 of credit sales each year that it would not otherwise obtain if it did not offer credit.In addition,the $30,000 of credit sales earns Martin Optical $12,000 per year.What is the net gain (loss)of continuing to offer credit to its customers?

Question

Quizplus · Accepted Answer

The net gain of continuing to offer credit to its customers can be calculated as follows:

- Revenue from credit sales: $30,000 x 2% = $600
- Less bad debts: $30,000 x 2% = $600
- Less administration expenses: $2,000
- Plus additional revenue earned from credit sales: $12,000
- Net gain = $12,000 - $600 - $600 - $2,000 = $9,400

Therefore, the best choice is D, as it represents the net gain of offering credit to its customers.

Martin Optical Has Found That 2% of Credit Sales Turn