Bellona Ltd is a small business that produces a single product a thermostat that is used in a range of kitchen appliances. Information relating to the thermostat is as follows: Per thermostat Selling price 1000 Material costs (450) Variable labour costs (250) Fixed costs apportionment (200) Profit 100 All sales are made to kitchen goods manufacturers on credit. Bellona Ltd divides its customers into three separate categories with each having the following characteristics: Customer category Bad debts (%) Average settlement period(No. of days) A 100 20 B 250 30 C 500 60 A new chief executive is concerned that sales have shown no significant growth for several years and is considering launching a marketing campaign to address the problem. A firm of marketing consultants has suggested that a focused campaign costing 080 million would increase sales revenue by 400 million. The business has sufficient spare capacity to accommodate this increase in sales. It is predicted that the increased sales would be distributed among the different categories of customers as follows: Customer category Predicted share of increase in sales% A 5 B 20 C 75 Bellona Ltd has an overdraft on which it pays 10% interest per year. EXERCISES 301 Required: (a) Calculate the effect on the profit of Bellona Ltd of launching the marketing campaign and briefly comment on the results. (Workings to nearest 000) (b) Explain why the management of trade credit can be a particular problem for small businesses such as Bellona Ltd.