Universal Corporation Is Concerned About Their Current Bad Debt Ratio

Multiple Choice

Universal Corporation is concerned about their current bad debt ratio of 6%.The CFO believes imposing a more stringent credit policy may reduce sales by 5% and reduce the bad debt ratio to 4%.If the cost of goods sold is 80% of the selling price, determine if the new policy should be undertaken.

A) Undertake; increase of 8.57% in profits
B) Undertake; increase of 9.55% in profits
C) Do not undertake; decrease of 8.57% in profits
D) Do not undertake; decrease of 9.55% in profits