A group of customer wants to enter into a contract with you to buy goods worth ₹20 lakh, deliveries to be made in four equal quarterly instalments. Sales price ₹200, variable cost ₹100. Additional expenditure ₹10,000 p.a

1. Calculate Average Collection Period: Days (X) % of Bill Collected (W) XW 30 0.15 4.5 60 0.25 15.0 90 0.40 36.0 100 0.20 20.0 Average Collection Period 75.5 days 2. Calculate Profitability of the Proposal: Total Sales (A) = ₹20,00,000 Sales in Units = ₹20,00,000 / ₹200 (Sales Price per unit) = 10,000 units Variable Cost = 10,000 units × ₹100 (Variable Cost per unit) = ₹10,00,000 Additional Expenses = ₹10,000 Opportunity Cost of Funds Locked in Receivables: Amount = Total Sales × Opportunity Cost Rate × (Average Collection Period / 360 days) Amount = ₹20,00,000 × 20% × (75.5 / 360) Amount = ₹20,00,000 × 0.20 × 0.209722 = ₹83,888.89 ≈ ₹83,889 Total Cost (B) = Variable Cost + Additional Expenses + Opportunity Cost Total Cost (B) = ₹10,00,000 + ₹10,000 + ₹83,889 = ₹10,93,889 Profit (A - B) = ₹20,00,000 - ₹10,93,889 = ₹9,06,111 Decision: Since the proposal generates a significant profit of ₹9,06,111, it is desirable to accept the new proposal .