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See page 104BBP Text 2016-117
Russian Beard Co is considering a change of credit policy which will result in an increase in the average
collection period from one to two months. The relaxation in credit is expected to produce an increase in
sales in each year amounting to 25% of the current sales volume.
Selling price per unit $10
Variable cost per unit $8.50
Current annual sales $2,400,000
The required rate of return on investments is 20%. Assume that the 25% increase in sales would result in
additional inventories of $100,000 and additional accounts payable of $20,000.
Advise the company on whether or not to extend the credit period offered to customers, if:
(a) All customers take the longer credit of two months
(b) Existing customers do not change their payment habits, and only new customers take a full two
months’ creditCannot figure parts of the solution. I am lost.
ThanksI am sorry, but I do not have the BPP Study Text – only the BPP Revision Kit.
Have you watched my free lectures on working capital management? The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well. If you are watching the lectures then you don’t really need the Study Text – what you do need is the Revision Kit because that contains lots of exam standard questions for practice, and practice is vital to passing the exam.
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