Callahan Computers has decided to offer credit to its customers during the spring selling season. Sales are expected to be 1,000 units. The average cost per unit is $850. The owner knows that only 93% of the customers will be able to make their payments. To identify the remaining 7%, the company is considering subscribing to a credit agency. The initial charge for this service is $10,000, with an additional charge of $8 per individual report. Calculate the net savings of subscribing the credit agency.
A) $42,000
B) $41,500
C) $41,000
D) $40,500
E) $40,000

Question

Quizplus · Accepted Answer

The cost of bad debts without the credit agency is 7% of 1,000 units at $850 each, which is $59,500. The cost of using the credit agency is $10,000 plus $8 per report for 1,000 units, totaling $18,000. The net savings is $59,500 - $18,000 = $41,500.

Callahan Computers Has Decided to Offer Credit to Its Customers