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De La Salle Lipa - ACCOUNTING 101 1) This is about Credit Policy

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De La Salle Lipa - ACCOUNTING 101

1) This is about Credit Policy. BBZ Corp. (manufacturer of baby cologne) is considering a new credit policy. The current policy is cash only. The new policy would involve extending credit for one period. The interest rate is 2 percent per period.  Based on the following information, determine if a switch is advisable or not. In your own words, explain your answer.

Current Policy   New Policy

Price per unit P175 P 175

Cost per unit 130 130

Sales per period in units        1,000   1,100

2.  This is about Credit Where Credit Is Due. You are the manager of 24/7 Enterprise. You are trying to decide whether or not to extend credit to a new customer. Your variable cost is P15 per unit; the selling price is P22. This customer wants to buy 1,000 units today and pay in 30 days. You think there is a 15 percent chance of default. The required return is 3 percent per 30 days.  Assume that this is a one-time sale and that the customer will not buy if credit is not extended. Should you extend credit? In your own words, explain your answer.