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  3. (o marks) b) xhamma co has current sales of 2 mill

(o marks) b) XHAMMA Co has current sales of 2 million per year. Cost of...

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(o marks) b) XHAMMA Co has current sales of 2 million per year. Cost of sales is 70% of sales and bad debts are 2& of sales. Cost of sales comprises 60% variable cost and 40% Fixed costs. The company finances working capital from an overdraft at a rate of 8% per year. XHAMMA Co currently allows customers 20 days credit but is considering increasing this to 50 days credit to increase sales. It has been estimated that this change in policy will increase sales by 10%, while bad debts will increase from 2% to 5%. It is not expected that this policy change will result in an increase in fixed costs, and payables and inventory will be unchanged. Should XHAMMA Co introduce the proposed policy (7 marks)

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