Currently, your ﬁrm sells 440 units a month at a price of $90 a unit. You think you can increase your sales by an additional 200 units if you switch to a net 30 credit policy. The monthly interest rate is .7
Percent and your variable cost per unit is $55. What is the incremental cash inﬂow of the proposed
Credit policy switch?

Question

Quizplus · Accepted Answer

Incremental sales = 200 unitsIncremental revenue = 200 units x $90 = $18,000Incremental variable cost = 200 units x $55 = $11,000Incremental contribution margin = $18,000 - $11,000 = $7,000Incremental cash inflow = $7,000 x (1 - .7%) = $7,000 x .993 = $6,951

Currently, Your ﬁRm Sells 440 Units a Month at a Price