Credit Card Service Expense - from Operating Expense Budget

When customers purchase items using their credit cards or debit cards, the selling organization is charged service fees by the credit card company. These fees range between 3% and 7% of the selling price (depending upon the company and the volume of annual sales it has or expects to have). For instance, if you purchase items from Wall Mart and pay with your credit card, Wall Mart is charged a certain percentage of the total value of the goods purchased. Assuming the percentage is 3% and you purchase $100 worth of items with your credit card, Wall Mart would pay the credit card company $3.00 in service charges ($100 x 3% = $3.00).

Murray expects all customers will order his product over the phone and will pay with their credit card. After talking to several credit card companies, Murray estimated his average credit card charge will amount to 4.8% of his selling price. Since his selling price is $26.00 and his forecasted sales in units for 200X is 4,000 diskettes, his total "Credit Card Expense", appearing on his 200X Forecasted Income Statement, will be $4,992 ($26.00 * 4000 units sold x 4.8% = $4,992). For simplicity, Murray decides the 200X Forecasted Cash Flow Statement will show equal payments (Cash Outflows) of $832 each month for Credit Card Charges ($4,992 / 6 months July to December).

Since Murray's forecasted selling price is $24.00 in 200Y and his forecasted sales in units for 200Y is 8,000 customers, his total "Credit Card Expense", appearing on  the 200Y Forecasted Income Statement, will be $9,216 ( IE $24.00 x 8000 units sold x 4.8% = $9,216). For simplicity, Murray decides his 200Y Forecasted Cash Flow Statement will show equal payments (Cash Outflows) of $768 each month for Credit Card Charges ( IE $9,216 / 12 months).