X Ltd. has annual sales of 10,000 units at $300 per unit. The annual fixed costs amount to $300,000. The variable cost is $200 per unit. The current credit period is 1 month. The company is considering a proposal to increase the credit period.

Fixed cost will increase by $60,000 on account of increase in sales beyond 25% of present level. The company plans a pre-tax return of 15% on investment in receivables.

Requirements:

1. You are required to calculate the most paying credit policy for the company.

2. Breifly describe the process and provide the analysis of the results.

Proposed Existing 1 3 Credit period (month) Increase in sales (per cent) Bad debts (per cent) 5 2 5 3 30 1 5