Problem

Manning alternatives presently sells to its customers on terms of 2/10, net 30. Its average collection period is 14 days, with 85 percent currently taking the discount. All sales are credit sales. Upper management has expressed concern about sluggish sales, and the marketing department would like a more attractive credit package. Next year's sales are projected to be $2,600,000. It has been estimated that with terms of 3/10, net 60, sales next year would jump to $3,500,000 and 65 percent of sales would take the discount, but the average collection period would increase to 31 days. Manning's contribution margin of 5 percent would hold with the expansion of sales, as would its short-term financing cost of 11 percent. Should manning alternatives initiate the change in credit policy?