You find yourself in a situation commonly faced by Financial Managers. Your Managing Director thinks business will improve if you change your current policy of cash sales only to allow for credit sales. Currently your annual sales are GH¢6,000. If you offer 30 days credit, you will need to set up a credit department. You expect that it will cost you GH¢2 to run this department monthly. Naturally, you expect all customers to buy on credit for 30 days. You anticipate that 1.5% of credit sales will not be collected. You must also make additional investments in debtors but not in fixed machinery or other overheads by drawing on your credit line with a bank on which you expect to pay 12% per annum interest on amounts drawn. Your cost of sales has been 60% of sales. Additionally, marketing expenses are 25% of sales. If your tax rate is 25% by how much must your sales increase to make this change worthwhile?
You find yourself in a situation commonly faced by
You anticipate that 1.5% of credit sales will not be collected. You must also make additional investments in debtors but not in fixed machinery or other overheads by drawing on your credit line with a bank on which you expect to pay 12% per annum interest on amounts drawn. Your cost of sales has been 60% of sales. Additionally, marketing expenses are 25% of sales. If your tax rate is 25% by how much must your sales increase to make this change worthwhile?
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