Question
Bright Limited is a manufacturer of garden chairs and is considering relaxing its tight credit policy to boost sales in the light ot the current
Bright Limited is a manufacturer of garden chairs and is considering relaxing its tight credit policy to boost sales in the light ot the current market development. The change in policy will result in an inerease n average collection period from 30 days (1 month) to 60 days (2 months). The review in credit policy is expected to increase sales in each year amounting to 25% of the current sales volume. Seling price unit GHe30Variable cost per unit GHE27 Current anual sales GHe6,000.000 The 25% increase in sales will result in additional stock level of GHe250,000 and additional accounts payable of GH50,000. The required rate of return on the investment is 25%. Required: Provide your advise on whether to extend or not extend period tocustomers if: () All the customers take the longer credit of 2 months. (11) Existing customers do not change their payment terms and only the(5 marks)new ones did?(4 marks)
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