The present sales of ABC Itd are Rs.50 lacs. The company classifies its customers under three...
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The present sales of ABC Itd are Rs.50 lacs. The company classifies its customers under three credit categories A, B and C. The company extends unlimited credit to category A, limited credit to category B and no credit to category C. As a result of this credit policy the company is foregoing sales to the extent of 5 lacs to customers in category B and Rs. 10 lacs to customers in category C The company is considering the adoption of a more liberal credit policy according to which category B customers will be provided with unlimited credit and customers in category C will be provided with limited credit. Such relaxation would increase the sales by Rs. 10 lacs on which bad debt losses will be 8 %. The contribution margin ratio (P/V) is 1596. Average collection period is 60 days. Cost of capital = 219. What will be the effect of relaxation of credit policy on the gross profit of the company? ould The present sales of ABC Itd are Rs.50 lacs. The company classifies its customers under three credit categories A, B and C. The company extends unlimited credit to category A, limited credit to category B and no credit to category C. As a result of this credit policy the company is foregoing sales to the extent of 5 lacs to customers in category B and Rs. 10 lacs to customers in category C The company is considering the adoption of a more liberal credit policy according to which category B customers will be provided with unlimited credit and customers in category C will be provided with limited credit. Such relaxation would increase the sales by Rs. 10 lacs on which bad debt losses will be 8 %. The contribution margin ratio (P/V) is 1596. Average collection period is 60 days. Cost of capital = 219. What will be the effect of relaxation of credit policy on the gross profit of the company? ould
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Answer rating: 100% (QA)
Current Situation Sales Rs 50 lacs Foregone sales to Category B customers Rs 5 lacs Foregone sales t... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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