X Ltd maufactures readymade garments and sells them on credit basis through a network of dealers Its present sale is 60 lakhs per annum with 20 days credit period. The company is contemplating an increase in the credit period with a view to increase sales. Present variable costs are 70% of sales and the total fixed costs 8 lakhs per annum.The company expects pretax return on investment @ 25%.Some other details are given below:
Proposed credit policy Average collection period Expected annual sales (in lakhs)
1 30 days 65
2 40 days 70
3 50 days 74
4 60 days 75
Required: Which credit policy should the company adopt? Assume 360 days in a year
I have got two solutions can anyone tell me which one is correct
I have attached the solution in the excel file
CAclubindia
