1. Change in credit policy. Dharma Putra Corporation, which has idle capacity, provides the following data:

Selling price per unit P80

Variable cost per unit P50

Fixed cost per unit P10

Annual credit sales 300,000 units

Collection period 60 days

Rate of return 16%

Bad debts losses 1%

Tax rate 40%

Dharma Putra is considering a change in credit policy that would relax its credit standards. The following information applies to the proposal:

a. Sales will increase by 20%.

b. Collection period will increase to 90 days.

c. Bad debts losses will increase to 2% of sales.

d. Collections costs are expected to increase by P200,000.

e. The company uses the 360-day year factor.

Required: Should the company change its credit policy?