Problem:
As treasurer of the Universal Bed Corporation, Aristotle Procrustes is worried about his bad debt ratio, which is currently running at 6 percent. He believes that imposing a more stringent credit policy might reduce sales by 5 percent and reduce the bad debt ratio to 4 percent.
If the cost of goods sold is 80 percent of the selling price, should Mr. Procrustes adopt the more stringent policy?