CumChan Manufacturing Is Considering an Alternate to Its Credit Policy

question 44

Essay

CumChan manufacturing is considering an alternate to its credit policy.At present, the firm sells its product at $42 per unit with monthly sales of 61,000 units.Fifteen% of all sales are for cash; the remainder sold on terms of net 30.The present average cost per unit is $13, and the marginal cost for the next 6,000 units is $20 per unit.Sales are expected to increase by 4,000 units per month if credit terms are altered to 3/15, 1/30, net 60.Cash sales are expected to remain at 15% of total sales.It is expected that 25% of future credit sales will be paid after 15 days, 35% after 30 days, and the remainder after 60 days.The company's tax rate is 45%, and its required after-tax rate of return on investments in receivables is 5% after tax.Should the firm alter its credit terms as indicated?

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Definitions:

Unnecessary Cruelty

Actions or behavior that cause harm or suffering without any justifiable purpose or benefit, often considered morally reprehensible.

Deceased Animals

Refers to animals that have died due to natural causes, disease, predation, or human activity.

Nomothetic

Nomothetic refers to an approach in psychological and social science research that focuses on identifying general laws that apply across individuals, as opposed to studying the unique aspects of individuals.

Idiographic

An approach focusing on the unique aspects of individuals, emphasizing personal experiences and subjective perceptions.