A. October corp.

has the following data:

Selling price per unit 70

Variable cost per unit 45
Annual unit credit sales 50,400
Collection period 30 days
Rate of return 20%

October corp. is considering easing its credit standards. If it does, sales will increase by
25%; collection period will increase to 45 days; bad debts losses are anticipated to be
4% of the incremental sales; and collection costs will increase by 31,645.

1. How much is the increase in the contribution margin? _____________

2. How much is the increase in the bad debts expense because of increase in sales?

3. How much is the increase in the financing cost for the additional variable cost?

4. If the proposed relaxation in credit standards is implemented, the net benefit

(loss) for October corporation is _________________
 B. October corp. has the following data:

Selling price per unit 70

Variable cost per unit 50
Annual unit credit sales 50,000
Collection period 30 days
Rate of return 30%

October corp. is considering tightening its credit standards. If it does, sales will decrease
by 20%; collection period will decrease 20 days; bad debts losses are anticipated to be
4% of the credit sales; and collection costs will decrease by 30,000. (use 360 days
working days)

1. How much is the decrease in the contribution margin? ______________

2. How much is the decrease in the bad debts expense because of decrease in sales.

3. How much is the decrease in the financing cost for the variable cost?

4. If the proposed tightening of credit standards is implemented, the net benefit

(loss) for October Corp. is __________.