receivable management(from bpp)

Grabbit quick co achieves current annual sales of $1800,000.the cost of sales is 80% of this amount, but bad debt averages 1% of total sales, and the annual profit is as follows. sales 1,800,000 less cos 1.440,000 less bad debts 18,000 profit 342000 the current debt collection is one month, and the management consider that,if credit terms were eased(option A), the effects would be as follows. Present policy Option A additional sales(%) - 25% avg collection period 1 month 2 months Bad debts(% of sales) 1% 3% the company requires a 20% return on its investments.the cost of sales are 75% variable and 25% fixed.Assume there would be no increase in fixed costs from the xtra revenue and that there would be no increase in avg inventories or acc payables. which is the preferable policy,option A or the present one? solution: increase in contribution from additional sales 25%*$1800000*40%* *the contribution/sales ratio is 100%-(75%*80%)=40% sir l didnt understand how they calculated the contribution/sales ratio are they taking a weighted avg of the cost of sales? kindly explain.Thank you