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Should firm implement the decision

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Reference no: EM132579864

A firm is contemplating stricter collection policies. The following details are available.

1. At present the firm is selling 36,000 units is credit at a price of rs.32 each. the variable cost per unit is rs.25 while the average cost per unit is rs.29:average collection period is 58 days; and collection expenses amount to rs.10,000; bad debts are 3 per unit.

2. If the collection procedure are tightened, additional collection charges amounting to 20,000 would be required,bad debts will be 1 per unit; collection period will be 40 days; sales volume is likely to decline by 500 units.

Question 1: Assuming a 20 per cent rate of return on investment, what would be your recommendation? should firm implement the decision?

Reference no: EM132579864

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