Harson Products currently has a conservative credit policy and is in the process of reviewing three other credit policies. The current credit policy (Policy?A) results in sales of $12 million per year. Policies?B and C involve higher sales, accounts receivable and inventory balances, as well as higher bad debt and collection costs. Policy D grants longer payment terms than Policy C, but charges customers interest if they take advantage of the lengthy payment terms. The policies are outlined below:

If the direct cost of products is 80% of sales and the cost of short-term funds is 10%, what is the optimal policy for Harson?