Currently, your firm sells 280 units a month at a price of $125 a unit. You think you can increase your sales by an additional 70 units if you switch to a net 30 credit policy. The monthly interest rate is.5 percent and your variable cost per unit is $80. What is the incremental cash inflow of the proposed credit policy switch?

Question

Quizplus · Accepted Answer

The incremental cash inflow from the proposed credit policy switch can be calculated by considering the additional units sold due to the policy change and the profit per unit, minus the cost of financing the sales on credit. The additional units sold would be 70, and the profit per unit is the selling price minus the variable cost ($125 - $80 = $45). The cost of financing the sales on credit for one month at a monthly interest rate of 0.5% is applied to the revenue generated from the additional sales (70 units * $125 = $8,750) * 0.5% = $43.75. Therefore, the incremental cash inflow is (70 units * $45 profit per unit) - $43.75 financing cost = $3,156.25. Since the options are rounded, the closest option is $3,150.

Currently, Your Firm Sells 280 Units a Month at a Price