The Rama Company is presently having sales of Rs. 108 lakhs. Its existing credit terms are 1/10, net 45 days and average collection period of 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 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 rupees 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?
The Rama Company is presently having sales of Rs. 108 lakhs. Its existing credit terms are 1/10,
net 45 days and average collection period of 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 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
rupees 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?
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