The Productive Manufacturing Company Limited is in the process of reviewing its credit policy to boost its sales. The present level of annual credit sales is $1200 000.

The marketing manager says, "we need to liberalize our credit policy from the present level of 2/10 net 30 days to at least 2.5/15 net 45 days. If implemented, sales will definitely go up by 25%".

The credit manager says, "no doubt more customers will try to take advantage of the discount offer, with the proportion rising to 30% of sales from the present level of 20%. But the average collection period on the whole might go up quite significantly from the present level of 45 days to any where around 60 days".

The finance manager had this to say, "our average collection period might go up but as more customers avail themselves of the discount offer, it is likely that we might be able to reduce our bad debt losses from the present level of 1.5% perhaps to 1% of total sales".

The production manager present in the meeting is not sure about the decision to liberalize credit policy now. He says, "why don't we invest around $80 000 or so in our quality line to improve our finished goods quality? That would be enough to overtake our competitors and boost our sales by a minimum of 25%".

Assuming 75% as the variable cost of sales and 20% pa as the opportunity cost of funds, advise the management on the viability of proposals suggested.