PT. AAH is currently is selling cooking oil for IDR 15.000/litre. Sales (all on credit) last year
Question:
PT. AAH is currently is selling cooking oil for IDR 15.000/litre. Sales (all on credit) last year were recorded at 2.400.000 unit. Variable cost per unit is IDR 9.000/litre. The firm total fixed cost is IDR. 12.000.000.000. The firm is considering changing its credit policy. Assumption: 1 year = 360 days.
The company has identified the following a alternatives:
The first alternative would be for PT. AAH to relax the credit policy level, in order to obtain 10% increase in unit sales. Average collection period will increase from 20 days to 35 days. An increase in bad-debt expenses from 1.5% of sales (the current level) to 4%. The cost of investment in Account Receivable is 17%.
Based on your assessment should PT. AAH change its current account receivable policy? Explain your answer comprehensively.