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Forrester Fashions has monthly credit sales of 25,000 units with an average collection period of 60 days. The company has a per-unit variable cost
Forrester Fashions has monthly credit sales of 25,000 units with an average collection period of 60 days. The company has a per-unit variable cost of 15 and a per-unit sale price of 26. Bad debts currently are 4.5% of sales. The firm estimates that a proposed relaxation of credit standards would increase the average collection period to 87 days and would increase bad debts to 7% of sales, which would rise to 37,500 units per month. Forrester's cost of capital is 0.8% per month. Show all necessary calculations needed to evaluate Forrester's proposed relaxation of credit standards. (Note: Assume a 365-day year.) The additional profit contribution from an increase in sales is $ (Round to the nearest dollar.)
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