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Suggest which policy is the best

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Reference no: EM131105043

XYZ Ltd. provides you the following information in respect of its present debtors policy and proposed debtors policies :

Particulars

Present Policy

Proposed Policy I

Proposed Policy II

Average Collection Period

90 days

45 days

135 days

Credit Sales

$2,500,000

$1,500,000

$7,500,000

Required Rate of Return (Pre-tax)

20%

20%

20%

Bad Debts (%)

5%

2.5%

10%

Selling Price per unit

$500

$500

$500

Variable Cost per unit (% of Sales)

85%

85%

85%

Average Cost per unit

$450

Required: Suggest which policy is the best (Assume 360 days in a year)

Reference no: EM131105043

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