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Questions and Answers
What is the selling price per unit?
What is the selling price per unit?
- Rs. 8
- Rs. 10 (correct)
- Rs. 6
- Rs. 12
How many additional units would be sold if option B is implemented?
How many additional units would be sold if option B is implemented?
- 30,000
- 20,000
- 40,000 (correct)
- 50,000
What percentage of default is anticipated with option C?
What percentage of default is anticipated with option C?
- 2.5%
- 3.5% (correct)
- 1.5%
- 4.5%
Which of the following credit period increases sales by 60,000 units?
Which of the following credit period increases sales by 60,000 units?
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What is the current bad debt loss percentage?
What is the current bad debt loss percentage?
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Study Notes
Current Situation
- Annual sales of Rs. 10 lakhs
- Average collection period is 30 days
- Current bad debt loss is 1%
- Selling price per unit is Rs. 10
- Average cost per unit is Rs. 6
- Variable cost per unit is Rs. 4
Proposed Liberal Credit Policies
- Policy A: Increase collection period by 15 days, increase sales by 20,000 units, anticipated default rate is 1.5%
- Policy B: Increase collection period by 25 days, increase sales by 40,000 units, anticipated default rate is 2.5%
- Policy C: Increase collection period by 30 days, increase sales by 60,000 units, anticipated default rate is 3.5%
- Policy D: Increase collection period by 40 days, increase sales by 70,000 units, anticipated default rate is 4.5%
Recommendation
- It's not possible to recommend the best credit policy without further analysis
- Calculations are needed for profit margin, return on investment (ROI) and other relevant factors.
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