Bridgewater, Inc. currently sells 4,500 units a month for total monthly sales of $285,000. The company is considering replacing its current cash only credit policy with a net 30 policy. The variable cost per unit is $48 and the monthly interest rate is 1.5 percent. What is the switch break-even point?

Question

Quizplus · Accepted Answer

The break-even point is calculated by determining the additional units needed to cover the cost of offering credit. The contribution margin per unit is the selling price minus the variable cost. The interest cost per unit is the selling price times the monthly interest rate. Solving for the break-even point gives 4,793 units.