The Rama Company is presently having sales of Rs. 108 lakhs. Its existing credit terms are...

 

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The Rama Company is presently having sales of Rs. 108 lakhs. Its existing credit terms are 1/10, net 45 days and average collection period of 30 days. Fifty percent of customers in terms of sales revenue are utilizing the cash discount incentive. The contribution to sales ratio of the company is 20 percent and cost of funds 15 percent. In order to hasten the collection process further as also to increase sales, if possible, the company is contemplating liberalization of its existing credit terms to 2/10, net 45 days. It is expected that sales are likely to increase by rupees 3 lakh and average collection period to decline to 20 days. Eighty percent of customers in terms of sales revenue are expected to avail themselves of the cash discount under the liberalization scheme. Should the company increase its cash discount? The Rama Company is presently having sales of Rs. 108 lakhs. Its existing credit terms are 1/10, net 45 days and average collection period of 30 days. Fifty percent of customers in terms of sales revenue are utilizing the cash discount incentive. The contribution to sales ratio of the company is 20 percent and cost of funds 15 percent. In order to hasten the collection process further as also to increase sales, if possible, the company is contemplating liberalization of its existing credit terms to 2/10, net 45 days. It is expected that sales are likely to increase by rupees 3 lakh and average collection period to decline to 20 days. Eighty percent of customers in terms of sales revenue are expected to avail themselves of the cash discount under the liberalization scheme. Should the company increase its cash discount?

Answer rating: 100% (QA)

Question Companys Present Sales 108 Lakhs Contribution to Sales Ratio 20 Average Collection Period 30 Days Previous Discount 1 110 net 30 It means 1 d... View the full answer