Bavarian Brew is producing and selling brewery equipment to microbreweries nationwide. Bavarian is charging P15,000 per unit and all of their sales are on credit. Under the current credit policy Bavarian Brew expects to sell 500 units. The variable costs are P6,000/unit and fixed costs are P1,500,000 per year. The company is thinking about changing their credit terms from net 30 to 3/10 net 30. The effect of this change would be a 5% increase in unit sales, but also an increase in bad debt expenses from 2% to 4% of sales. The company expects 75% of its customers to take advantage of the cash discount. Currently the company has an average collection period of 38 days, 30 days until the customers mail their payments and another 8 days to process the payments once they arrive. Bavarian Brew opportunity cost of funds invested in accounts receivable is 12%. The company is using the regular 365-day year basis. What is Bavarian Brew total variable cost of annual sales under the new credit policy? *

P3,750,000

P3,000,000

P3,150,000

P2,500,000