Debtors mgt- ipcc

Total Cost per unit = 9

Variable Cost per unit = 7

Therefore Fixed Cost per unit = 9 - 7 = 2

Therefore Total Fixed Cost = 2 x 120000 = 240000    [120000 is the total units sold]

Statement showing Analysis

 ………………………………………………Current                          Proposed

Units sold                                            120000                              150000

Sales (units x 10)                                1200000                           1500000

(-) Variable Cost  (units x 7)                   840000                           1050000

                 Contribution                         360000                             450000

(-) Fixed Cost (as calculated above)        240000                              240000

                Operating Profit                      120000                            210000

(-) Required Return                                 22500                               53750

                       Surplus                           97500                              156250

Surplus is more if credit is extended. Therefore credit should be extended.

Note: Required return is calculated on Total Cost approach, i.e. FC + VC x Rate% x Credit period

In the Current policy, Required return = 240000 + 840000 x 25% x 1/12 = 22500

In the Proposed policy, Required return = 240000 + 1050000 x 25% x 2/12 = 53750

@ a. mukherjee--- thankew for helping .but do the answers differ by the change in methods of solving a question.?? because the buk from which i m doing have all the diffrent answers..and my answers are diffrent.. means the decisn is same but the values differ..

is it ok/??