8. The Electro Limited is a distributor of electric equipments. Its sales in 2004 amounted to *22 crore and after tax profit 1.10 crore. The company has been experiencing a declining profit margin for the last three years. It is felt that this is due to the loose credit policy. On investigation, a group of slow paying customers was identified. It is recommended that the credit policy should be tightened to eliminate them. Sales to this group amounted to about 20 per cent of the company's total sales. Table 28.7 gives information about the company's cost structure. It is expected that if the slow- paying accounts are eliminated only variable costs would decline. It is also believed that bad-debt and collection expenses are entirely attributable to these accounts. Using this information, you are required to allocate Electro's income and expenses between "slow-paying" accounts and "good" accounts. Table 28.7: The Electro Limited: Fixed and Variable Costs (Per cent of Sales) Total Fixed Variable Cost of goods sold 85.0 - 85.0 Selling 4.6 2.0 2.6 Administration 2.4 0.8 1.6 Warehousing 2.4 1.0 1.4 Bad-debts 0.4 - 0.4 Collection 0.2 0.2 A study of credit files indicated that the collection period on 'slow-paying' accounts average to 50 days versus 35 days for all accounts. The balance of debtors for these accounts averaged *885,000 during 2004. Should the Electro Limited tighten its credit policy? Make suitable assumptions.