The credit manager of Junaid Company had to decide on a proposal for liberal extension of credit which would result in a slowing process of the average collection period from 30 days (Existing) to 70 days (New). The company's product was sold at Rs25 per unit and average total cost per unit was Rs20 including Rs2 fixed cost per unit. The relaxation in credit policy was expected to result in a 20% increase in sales and sales after increase would be 120,000 units while the existing sales volume is 100,000 units. The collection charges will also be increased from Rs80,000 to Rs100,000.The relaxation in credit policy will also increase the bad debt losses from 1 % to 3 % and investment in additional inventory would be Rs30,000.The corporate manager aimed at a return of 30% on investment.

Required:

You are required to make relevant calculations to help the credit manager in examining the financial implication of liberalizing the credit policy. (Use contribution margin rate, where it is necessary)