Credit Policy
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As treasurer of the Universal Bed Corporation, Aristotle Procrustes is worried about his bad debt ratio, which is currently running at 6%. He believes that imposing a more stringent credit policy might reduce sales by 5% and reduce the bad debt ratio to 4%. If the cost of goods sold is 80% of the selling price, should Mr. Procrustes adopt the more stringent policy?
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Solution Summary
The solution explains how to evaluate changes in trade credit policy
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If the sales are $100, then the cost of goods sold is $80 and the profit is $20. A more stringent credit policy ...
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