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Credit Policy

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Credit Policy. 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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The solution evaluates a stringent credit policy.

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Sales= 100
Cost of goods sold= 80 =80% * 100
Bad debt @ 6%= 6 =6% * ...

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