Annual Sales 2400000

Unit SP 10
Variable Cost 70%
ROI 20%
Avg Cost per unit 9
Collection Expenditure 50000
Default Rate 3%
Collection Period (months) 2
Workings
No of Units 240000
Total Cost 2160000
Fixed Cost 648000
Variable Cost 1512000 1512000

Cost % 90% 0.9

 Present Prog Prog A Prog B
Collection Period (months) 2 1.5 1
Default Rate 3% 2% 1% Collection expenditure an
Total Cost 2160000 2160000 2160000 are inversely rel
Sales 2400000 2400000 2400000
Sundry Debtors 400000 300000 200000 CP = 12 months *(Deb
Investment in sundry debtors 360000 270000 180000
Reduction in investments in receivables 90000 180000
ROI (A) 18000 36000
Collection Expenditure 50000 75000 150000
Additional Collection Expenditure (B) 25000 100000
Bad Debt 72000 48000 24000
Cost of Bad debt losses 64800 43200 21600
Decrease in cost of bad debt ( C ) 21600 43200
Net Gain (A)-(B)+( C) 0 14600 -20800
Collection expenditure and default rate
are inversely related.

CP = 12 months *(Debtors/Sales)
 Variable Cost 80%
Fixed Cost 100000
CoC 15%
New credit days 30

Credit policies A B C D E
Credit Days 90 75 60 45 30
Sales 1600000 1500000 1450000 1425000 1350000
Variable Cost 1280000 1200000 1160000 1140000 1080000
Fixed Cost 100000 100000 100000 100000 100000
Contribution 320000 300000 290000 285000 270000
Total Cost 1380000 1300000 1260000 1240000 1180000
Profit 220000 200000 190000 185000 170000
Profit 220000 200000 190000 185000 170000
Decremental profit (A) - -20000 -10000 -5000 -15000
Sundry Debtors 394521 308219 238356 175685 110959
Decremental Investment 86301 69863 62671 64726
Incremental cost of fund saved (B) 12945 10479 9401 9709
Additional Gain (A+B) -7055 479 4401 -5291
Economic Profit (Profit + Additional
Gain) 192945 190479 189401 164709
 F
15
1300000
1040000
value of debtor = investment (professionals consider)
100000 value of debtor * (1-p%) = investment (academician)
260000
1140000
160000
160000
-10000
53425
57534
8630
-1370

158630
sider)
ician)
 2/10 N 30 : 2% discount if paid in 10 days otherwise pay in 30 days without discount

Additional Sales 1,500,000,000

Credit sales for additional sale 50
Additional Debtors 205,479,452
ROI 20%
ROI lost on additional debtors (A) 41,095,890
bad debt on additional sale 5%
Increased bad debt on additional sales (B) 75,000,000
Increased collection and investigation cost ( C) 15,000,000
Marginal cost of additional receivables (A+B+C) = (D) 131,095,890
Contribution 20%
Marginal revenue from additional sales (E) 300,000,000
Gain (E-D) 168,904,110
nt