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Should proposed relaxation in credit standard be implemented

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Reference no: EM132483311

Question - A corporation reports the following information:

Selling Price per unit $10

Variable cost per unit 8

Total fixed costs 120,000

Annual credit sales 240,000 units

Collection period 3 months

Rate of return 25%

The corporation which has enough idle capacity, is considering relaxing its credit standards (more liberal extension of credit). If it does, the following is expected to result' Sales will increase by 25%, collection period will increase to 4 months, bad debt losses are anticipated to be 5% on the incremental sales, and collection costs will increase by $40,000

Required - Should the proposed relaxation in credit standards be implemented?

Reference no: EM132483311

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