Problem:
Our company has annual credit sales of $50 million. Bad debts are 3% of sales. Contribution margin on its sales is 30%.
After my analysis, the following information about my proposed new credit policy to tighten credit policy from the current terms net 1/30 net 50 to net 30 is shown as follows:
- Sales will decrease to $45 million.
- Bad debts will decrease to 1%.
How can I estimate the change in profit for the company after launching the new credit policy ?