Reference no: EM132945907

Question - BRLM Company is planning to relax its credit standards to boost sales. As a result, sales are expected to increase 16 percent from 3,000 units per year to 3,480 units per year. The average collection period is expected to increase to 40 days from 30 days and bad debts are expected to double the current 1.5 percent level. The price per unit is P4,250, the variable cost per unit is P3,060. The firm's required return on investment is 20 percent.

1. What is the firm's additional profit contribution from sales under the proposed relaxation of credit standards?

a. P4,379,200

b. P428,400

c. P142,800

d. P571,200

2. What is the cost of marginal investments in accounts receivable under the proposed plan?

a. P83,640

b. P87,677

c. P90,090

d. P78,026

3. What is the cost of marginal bad debts under the proposed plan?

a. P258,923

b. P19,445

c. P168,300

d. P38,838

4. What is the net result of implementing the proposed plan?

a. +P319,260

b. -P312,474

c. -P168,274

d. +P168,274