Section B (Answer the compulsory Question 1 in this section - answer both parts A and B) Question 1 - Part A Oculus Plc manufactures and distributes insulation panels for corporate customers. In the current year, it has annual sales of 2,400,000 which occur evenly throughout the year. 80% of sales are made on credit and the remaining 20% are made on a cash basis. The company allows its credit customers a period of 30 days credit from the invoice date and a review of recent trends shows that one third of credit customers pay within this period, taking an average of 25 days to pay. The remainder of its credit customers take an average of 50 days to settle their accounts. Oculus plc's finance manager is considering introducing a cash discount of 5% for its customers who settle their accounts within 10 days of the invoice date. The introduction of the discount scheme is expected to have the following implications: 60% of debtors (in value terms) who at present settle their accounts on average in 25 days are expected to take advantage of the discount by paying on the 10th day, and the remaining 40% of this group will, on average, pay on the 25th day; 35% of the customers in value terms) who presently take an average of 50 days to pay will also avail of the discount by settling their accounts on the 10th day, while the other 65% of this group will take an average of 60 days to pay the amounts due; The discount scheme should also have the effect of reducing the present level of bad debts by 62,000 per year; and The availability of the cash discount should attract new customers who will pay on the 10th day. It is estimated that 310,000 per year in additional sales should be achieved from this source. The company's average variable cost ratio is 70% currently and the current cost of the company's bank borrowings is 10% per year. (Note: assume a 365-day year). Required: (a) Prepare an analysis of the expected costs and benefits of the proposed discount scheme, and prepare an overall recommendation for the finance manager of Oculus Plc. (18 marks) (6) Discuss the challenges created by COVID-19 restrictions for companies when managing their working capital. (9 marks) (Total for Part A: 27 marks) Question 1 continued on the next pagel... obat Reader DC 2