Garcia Company has always required its customers to pay cash for purchases. It is con- sidering making credit sales and has come to you for advice on this issue. You determine that Garcia has made sales of $800,000 each year for the past several years, on which it has earned a gross profit of 40%. Basing your calculations on industry information, you estimate that Garcia's sales will increase by 15% if it makes credit sales. However, bad debts are likely to be about 2% of credit sales, and additional variable selling expenses, will be about 5% of credit sales. In addition, the cost of operating thé credit department is estimated to be $30,000. a ae Required:

(1) Prepare a schedule to determine whether Garcia’s profit will increase if it makes credit sales.
(2) What other issues regarding profitability should Garcia consider before deciding whether to make credit sales? TYK-1