QUESTION 3 (Continued) )) It is possible to use the incremental approach in answering this part of the question However, given that Options a and b are the only policies that are viable, we can restrict ourselves to these policies a to B 1. Previous net position (see Part 2650 650 2. Current bad debt loss 2400 7500 Bad debts %x sales (001×240000)(003×25000 3. New bad debt loss 7500 15300 New bad debts %6x new sales (003×25000(006×255000 4. Increase in bad debts 5100 7800 3.-2 (7500-2400)(15300-7500) 5. Revised net position 2450 7150 2650-5100 650-7800 Conclusion: When bad debts are taken into consideration. the firm should maintain its existing policyAugust 2003 QUESTION 3 (Continued) (b) It is possible to use the incremental approach in answering this part of the question. However, given that Options A and B are the only policies that are viable, we can restrict ourselves to these policies. To A A to B 1. Previous net position (see Part (a)) 2 650 650 2. Current bad debt loss (Bad debts % x sales) 2 400 (0.01 ×240 000) 7 500 (0.03 ×250 000) 3. New bad debt loss (New bad debts % x new sales) 7 500 (0.03 ×250 000) 15 300 (0.06 ×255 000) 4. Increase in bad debts (3. - 2.) 5 100 (7 500 - 2 400) 7 800 (15 300 - 7 500) 5. Revised net position (1. - 4.) -2 450 (2 650 - 5 100) -7 150 (650 - 7 800) Conclusion: When bad debts are taken into consideration, the firm should maintain its existing policy