Question

10. Rama company is presently having sales of Rs. 108 lakh. Its existing credit terms are 1/10, net 45 days and the average collection period is 30 days. Fifty percent of customers in terms of sales revenue are utilizing the cash discount incentive. The contribution to sales ratio of the company is 20 percent and cost of funds is 15 percent. In order to hasten the collection process further as also to increase sales, if possible, the company is contemplating liberalization of its existing credit terms to 2/10, net 45 days. It is expected that sales are likely to increase by Rs.3 lakh and average collection period to decline to 20 days. Eighty percent of customers in terms of sales revenue are expected to avail themselves of the cash discount under the liberalization scheme. Should the company increase its cash discount? Find the incremental benefits and assess the proposal considering the year of 360 days.

          10. Rama company is presently having sales of Rs. 108 lakh. Its existing credit terms are 1/10, net 45 days and the
average collection period is 30 days. Fifty percent of customers in terms of sales revenue are utilizing the cash
discount incentive. The contribution to sales ratio of the company is 20 percent and cost of funds is 15 percent. In
order to hasten the collection process further as also to increase sales, if possible, the company is contemplating
liberalization of its existing credit terms to 2/10, net 45 days. It is expected that sales are likely to increase by Rs.3
lakh and average collection period to decline to 20 days. Eighty percent of customers in terms of sales revenue are
expected to avail themselves of the cash discount under the liberalization scheme. Should the company increase its
cash discount? Find the incremental benefits and assess the proposal considering the year of 360 days.

10. Rama company is presently having sales of Rs. 108 lakh. Its existing credit terms are 1/10, net 45 days and the
average collection period is 30 days. Fifty percent of customers in terms of sales revenue are utilizing the cash
discount incentive. The contribution to sales ratio of the company is 20 percent and cost of funds is 15 percent. In
order to hasten the collection process further as also to increase sales, if possible, the company is contemplating
liberalization of its existing credit terms to 2/10, net 45 days. It is expected that sales are likely to increase by Rs.3
lakh and average collection period to decline to 20 days. Eighty percent of customers in terms of sales revenue are
expected to avail themselves of the cash discount under the liberalization scheme. Should the company increase its
cash discount? Find the incremental benefits and assess the proposal considering the year of 360 days.

Added by David S.

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