In order to increase sales and to motivate customers to buy on credit terms, a company...

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In order to increase sales and to motivate customers to buy on credit terms, a company is planning to relax its credit policy of net 30. Fixed cost is Rs. 50,000 currently and is expected to remain same for all levels of sales. Variable costs are 75 percent of sales. The incremental sales are expected to be on credit basis. For the perceived increase in risk in liberalizing the credit terms, the company requires higher required return. Bad debts are likely to arise on incremental credit sales. If the following information is projected, which of the following credit policy should the company adopt? Credit Policy A B Incremental Sales Required Collection Return Period 20% 40 3,00,000 25% 45 4,00,000 Assume 360 working days in an year. Bad Debts 10,000 15,000 (10) In order to increase sales and to motivate customers to buy on credit terms, a company is planning to relax its credit policy of net 30. Fixed cost is Rs. 50,000 currently and is expected to remain same for all levels of sales. Variable costs are 75 percent of sales. The incremental sales are expected to be on credit basis. For the perceived increase in risk in liberalizing the credit terms, the company requires higher required return. Bad debts are likely to arise on incremental credit sales. If the following information is projected, which of the following credit policy should the company adopt? Credit Policy A B Incremental Sales Required Collection Return Period 20% 40 3,00,000 25% 45 4,00,000 Assume 360 working days in an year. Bad Debts 10,000 15,000 (10)

Answer rating: 100% (QA)

The company should adopt policy B The company should adopt policy B since it has the ... View the full answer