Question

The National Ltd. is examining the question of relaxing its credit policy. It sells at present 20,000 units at a price of the Rs. 100 per unit; the variable cost per unit is Rs. 88 and average cost per unit at the current sales volume is Rs. 92. All the sales are on credit, the average collection period being 36 days.
A relaxed credit policy is expected to increase sales by 10 percent and the average age of receivables to 60 days. Assuming 15 percent return, should the firm relax its credit policy?
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Answer 1

Answer:

Explanation:

The average collection period is the average number of days between 1) the dates that credit sales were made, and 2) the dates that the money was received/collected from the customers. The average collection period is also referred to as the days' sales in accounts receivable.