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| Gnasher Inc. has revenue of $3,960,000. Credit control costs average 1 % of revenue. Cost of sales are 80% of revenue and are 75% variable and 25% fixed. Management is considering whether to change the credit policy from one month to two months. The effects of this would be to increase revenue by 15 %. However, credit control costs would increase from 1% to 2% of revenue. Required (c) Calculate whether Gnasher should change its credit policy. (Assume there would be no increase in fixed costs from the extra turnover; that there would be no increase in average inventories or accounts payable; and that any extra finance required due to higher receivables would cost 10%). (7 marks) |