Arif Fancy Boat makes small recreational boats. The recreational boats are inflatable with the option of attaching sails, a small outboard motor, or rowing equipment. The boats typically sell for RM1500. Many of the Arif Fancy Boats customers cannot pay cash for their boats but are willing to make monthly payments over a two-year period. The companys financing department has estimated the following profile for its recreational boats and customer base:

Annual sales 16000 inflatable boats

Annual production costs: RM 1100 per boat

Profit margin per boat: RM400

Lost sales if credit is not provided for all customers: 7000 boats

If credit is provided for all customers 0.5% of customers default

(80)

Required:

If credit screening can eliminate bad-credit customers, what is the maximum credit-screening cost per customer Arif Fancy should pay? (Assume Arif has 9000 customers who are ready to pay cash and 7000 customers who will need credit and assume all 16,000 buyers will opt for credit if credit is allowed). Comments on the credit screening process (you can include your own assumptions)