(a) Bright Vision Electronics Limited, a manufacturer of Colour Television sets, is considering the relaxation of its existing credit policy for…

CA Intermediate · Financial Management and Strategic Management · MTP · September 2026
(a) Bright Vision Electronics Limited, a manufacturer of Colour Television sets, is considering the relaxation of its existing credit policy for three of its major customers, namely A, B, and C. The proposed credit periods and the estimated additional sales of Colour TV sets expected from these customers as a result of the revised credit terms are given below: Quantity sold (No. of TV Sets) Credit Period (Days) A B C 0 1,000 1,000 - 30 1,000 1,500 - 60 1,000 2,000 1,000 90 1,000 2,500 1,500 The selling price per TV set is ₹9,000. The expected contribution is 20% of the selling price. The cost of carrying receivable averages 20% per annum. You are required: (a) Determine the credit period to be allowed to each customer. (Assume 360 days in a year for calculation purposes). (b) What other problems the company might face in allowing the credit period as determined in (a) above?

Suggested Answer and Working Notes:

2. (a) (a) In case of customer A, there is no increase in sales even if the credit is given. Hence comparative statement for B & C is given below: Particulars Customer B Customer C 1. Credit period (days) 0 30 60 90 0 30 60 90 2. Sales Units 1,000 1,500 2,000 2,500 - - 1,000 1,500 in lakhs in lakhs 3. Sales Value 90 135 180 225 - - 90 135 4. Contribution at 20% (A) 18 27 36 45 - - 18 27 5. Receivables: Credit Period × Sales - 11.25 30 56.25 - - 15 33.75 360 6. Debtors at cost i.e. 80% of 11.25 - 9 24 45 - - 12 27 7. Cost of carrying debtors at 20% (B) - 1.8 4.8 9 - - 2.4 5.4 8. Excess of contributions over cost of carrying debtors (A - B) 18 25.2 31.2 36 - - 15.6 21.6 The excess of contribution over cost of carrying Debtors is highest in case of credit period of 90 days in respect of both the customers B and C. Hence, credit period of 90 days should be allowed to B and C. (b) Problem (i) Customer A is taking 1000 TV sets whether credit is given or not. Customer C is taking 1000 TV sets at credit for 60 days. Hence A also may demand credit for 60 days compulsorily. (ii) B will take 2500 TV sets at credit for 90 days whereas C would lift 1500 sets only. In such case B will demand further relaxation in credit period i.e. B may ask for 120 days credit.

Topics: Part-A: Financial Management, Part B: Strategic Management

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