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    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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    https://brainmass.com/business/credit-management-credit-policy-analysis-and-risk/credit-policies-change-profits-company-136655

    Solution Preview

    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% ...

    Solution Summary

    Our company has annual credit sales of $50 million. Bad debts are 3% of sales. Contribution margin on its sales is 30%.

    $2.19

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