SEF Corporation is an emerging children toys business. The unique designs of its products attracted...
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SEF Corporation is an emerging children toys business. The unique designs of its products attracted customers from across the region. To further enlarge its market reach, management plans to modify some policies and practices related to credit and collection. The following information are given for the firm: Unit Selling Price P7.00 Unit Variable Cost P4.50 Fixed Cost per unit P1.50 Annual Credit Sales 40,000 units Collection Period 3 months Rate of Return 19% The business firm targets to increase its market share by adjusting its credit standards. With the new standards, the following changes are expected: Sales will increase by 25% Collection period will extend by one month Uncollectible accounts are estimated to be 4% on the incremental sales Collection costs will increase by P3,400 Should the proposed change in credit standards be adopted? Justify.
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