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Calculate the most paying credit policy for the company

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ABC Company has at present annual sales level of 10,000 units at 300/units.the variable cost is $200 per unit and fixed cost amount to $300,000 perineum the present credit period allowed by the company is month. The company is considering as proposal to increase the credit period to 2 months and 3 months; and has made the following estimates:

Existing Proposed

Credit period_________________1_______2________3

Increase in sales Percent____15______15________30

Bad debt (percent)_____________1______3_________5

Question 1: There will be increase in fixed cost by $20,000 On account of increase in sales beyond 25% percent level. The company plans a pre-tax return of 20% on investment in receivables. You're required to calculate the most paying credit policy for the company.

Reference no: EM132611878

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