Alpha Ltd. is examining the question of relaxing its credit policy. It sells at present 20,000 units at a price of Rs. 100 per unit. The variable cost per unit is Rs. 88 and average cost per unit at the current sales volume is Rs. 92. All the sales are on credit, the average collection period being 36 days.
A relaxed credit policy is expected to increase sales by 10% and the average age of receivables to 60 days. Assuming 15% return, should the firm relax its credit policy?
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Alpha Ltd. is examining the question of relaxing its credit policy. It sells at present 20,000 units at a price of Rs. 100 per unit. The variable cost per unit is Rs. 88 and average cost per unit at the current sales volume is Rs. 92. All the sales are on credit, the average collection period being 36 days.
See Answer →"Liquidity and Profitability are significant factors which are taken into consideration while taking working capital decisions." Discuss. Explain the relation between liquidity, profitability and working capital.
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See Answer →You are required to prepare a Cash Budget of XYZ Ltd. for the months of May, June and July 2026 from the information given below:
(a) Income and Expenditure Forecasts:
| Months | Credit Sales | Credit Purchases | Wages | Manufacturing Expenses | Office Expenses | Selling Expenses |
|---|---|---|---|---|---|---|
| March | 60,000 | 36,000 | 9,000 | 4,000 | 2,000 | 4,000 |
| April | 62,000 | 38,000 | 8,000 | 3,000 | 1,500 | 5,000 |
| May | 65,000 | 33,000 | 10,000 | 4,500 | 2,500 | 4,500 |
| June | 58,000 | 35,000 | 8,500 | 3,500 | 2,000 | 3,500 |
| July | 56,000 | 39,000 | 9,500 | 4,000 | 1,000 | 4,500 |
| August | 60,000 | 34,000 | 8,000 | 3,000 | 1,500 | 4,500 |
b) Cash balance on 1st May 2026 is Rs. 8,000.
c) Plant costing Rs. 16,000 is due for delivery in July, payable 10% on delivery and the balance after 3 months.
d) Advance Tax of Rs. 8,000 each is payable in March and June.
e) Period of credit allowed
(i) by suppliers is two months and
(ii) to customers is one month.
f) Lag in payment of manufacturing expenses is half month.
g) Lag in payment of office and selling expenses is one month.
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