Reference no: EM132524195

Bomberdan Corporation is, a manufacturer company, producing fashionable clothes for the customers. The company is contemplating making a change in credit policy from cash basis. The following alternatives are placed for the evaluation:

Current One: Price per unit $24, variable cost is $15, quantity sold 2200 unit each month.

Alternative One: Price per unit $28, variable cost is $16, quantity to be sold 2700 units each month, net period 30 days.

Alternative Two: Price per unit $35, variable cost is $20, quantity to be sold 6700 units each quarter, net period 90 days.

The Bomberdan's annual required rate of return is 12 percent. It is assumed that once credit is granted, customers will continuously place the order. Do you think that Bomberdan should change its credit policy? If yes, then which one the management should prefer?

What should be level of quantity for Bomberdan under each alternative in which it will become indifferent to any credit policy?