Your ﬁrm currently sells 85 units a month at a price of $400 a unit. You think you can increase your sales by an additional 30 units if you switch to a net 30 credit policy. The monthly interest rate is .5
Percent and your variable cost per unit is $280. What is the incremental cash inﬂow from the
Proposed credit policy switch?

Question

Quizplus · Accepted Answer

First, let's calculate the current cash inflow from sales: 85 units x $400 per unit = $34,000 per month.

Next, let's calculate the incremental revenue from the credit policy switch: 
30 additional units x $400 per unit = $12,000.

However, we need to consider the cost of financing the credit policy for 30 days. At a monthly interest rate of .5%, this cost will be:
($400 x .005) x 30 units x 30 days = $1,350.

Finally, we need to subtract the variable cost per unit from the incremental revenue:
($12,000 - $1,350) - (30 units x $280 per unit) = $10,050.

Therefore, the incremental cash inflow from the proposed credit policy switch is $3,600 (choice C).

Your ﬁRm Currently Sells 85 Units a Month at a Price