Page 80 - DBP5043

QUESTION 5

Afiq Afiqah Sdn. Bhd. plans to change credit policy as mentioned

below.

Current policy (3/10 net 40) NEW policy (5/15 net 50)

Credit sales RM50,000 Credit sales RM80,000

40% customers take the cash 40% customers take the cash

discount discount

25% of the customers pay 30% of the customers pay on
on day 40 day 40

35% of the customers pay 30% of the customers pay on

on day 50 day 50

Bad debt RM17,500 Bad debt RM22,000
Inventory RM25,000 Inventory RM28,000

The variable cost is 75% of sales

Pre-tax required rate of return is 20%

Based on the above information, should the new credit

policy implemented? Show your calculation assuming

there are 360 days in a year.