You currently sell a product with a variable cost per unit of $43 and a unit selling price of $69. At the present time you only sell on a cash basis and have monthly sales of 680 units. The monthly interest rate is.75 percent. You are considering switching to a net 30 credit policy. What is the switch break-even point?

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The switch break-even point is the point at which the total cost of the two policies is the same. The total cost of the cash basis policy is the variable cost per unit multiplied by the number of units sold, plus the monthly interest rate multiplied by the average accounts receivable balance. The average accounts receivable balance is the number of days in the month multiplied by the average daily sales, which is the number of units sold divided by the number of days in the month. The total cost of the net 30 credit policy is the variable cost per unit multiplied by the number of units sold, plus the monthly interest rate multiplied by the average accounts receivable balance, plus the bad debt expense. The bad debt expense is the percentage of sales that are not collected.The switch break-even point is the point at which the total cost of the two policies is the same. This occurs when the average accounts receivable balance under the net 30 credit policy is equal to the average accounts receivable balance under the cash basis policy. The average accounts receivable balance under the net 30 credit policy is 30 days multiplied by the average daily sales, which is 680 units divided by 30 days. The average accounts receivable balance under the cash basis policy is 0 days multiplied by the average daily sales, which is 680 units divided by 30 days. Therefore, the switch break-even point is when the average accounts receivable balance under the net 30 credit policy is equal to 0 days. This occurs when the number of units sold is 694 units.

You Currently Sell a Product with a Variable Cost Per