Saucier Co. currently sells 1,208 units a month for total monthly sales of $209,600. The firm is considering replacing its current cash only credit policy with a net 30 policy. The variable cost per unit is $106 and the monthly interest rate is .71 percent. What is the new sales quantity at the switch break-even level of sales? Assume the selling price per unit and the variable costs per unit remain constant.

Question

Quizplus · Accepted Answer

The break-even sales quantity can be calculated by determining the additional contribution margin needed to cover the cost of offering credit. The contribution margin per unit is the selling price minus the variable cost per unit. The cost of offering credit is the interest rate multiplied by the selling price per unit. Solving for the break-even sales quantity gives 1,230 units.