Credit Policies and Change in Profits for a Company
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Our company has annual credit sales of $50 million. Bad debts are 3% of sales. Contribution margin on its sales is 30%.
After my analysis, the following information about my proposed new credit policy to tighten credit policy from the current terms net 1/30 net 50 to net 30 is shown as follows:
- Sales will decrease to $45 million.
- Bad debts will decrease to 1%.
How can I estimate the change in profit for the company after launching the new credit policy ?
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Solution Summary
Our company has annual credit sales of $50 million. Bad debts are 3% of sales. Contribution margin on its sales is 30%.
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Our company has annual credit sales of $50 million. Bad debts are 3% of sales. Contribution margin on its sales is 30%.
in mn$
Contribution Margin ( in value)= 30% of Credit sales= 15
Less Bad Debts (3% ...
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