Causeway Ltd was formed in yr 2000 and its principal activities are that of producing and selling cricket bats. The company sells the bats to wholesalers and retailers and has an annual turnover of $ 900,000. The following data relates to each bat produced.

The cost of capital of causeway Ltd is 13%
Causeway Ltd wishes to expand the sale of bats and believes that the objective could be achieved by offering a longer period of credit to potential customers. The average collection period of the causeway Ltd is currently 30 days. It is considering three options in order to increase sales. These are as follows.

Prepare the following:
a). Calculations to show which credit policy the company should offer its customers.
b). A report to the management of Causeway Ltd, advising them on the selection of the option and what other factors should be considered before a final decision is made.

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Selling price Variable costs Fixed cost appointment Net Profit 75 30 20 50 25 Option Option2 20 days Option 3 30 days $ 90,000 15 days Increase in sales S 50,000 65,000