2. Your company is considering a modification to your credit policy, as follows:
No bad-debt losses are expected.
The company's variable cost of sales is 80%.
Cost of capital is 20%
Should you adopt either the policy? Why?© BrainMass Inc. brainmass.com October 24, 2018, 9:08 pm ad1c9bdddf
Increased sales = 5 million
Increase in receivables = 5 million *45/360= 0.625 ...
Reasoning and computation given.
Credit Policy: Should a More Stringent Policy Be Adopted?
As treasurer of the Universal Bed Corporation, Aristotle Procrustes is worried about his bad debt ratio, which is currently running at 6 percent. He believes that imposing a more stringent credit policy might reduce sales by 5 percent and reduce the bad debt ratio to 4 percent.
If the cost of goods sold is 80 percent of the selling price, should Mr. Procrustes adopt the more stringent policy?View Full Posting Details