Little Runabout Inc.makes small trailers for light-duty towing behind SUVs and small pickup trucks.Its trailers typically sell for $2,500.Many of its customers have asked for credit terms to aid in purchasing the trailers.The firm's finance department has estimated the following profile for its light-duty trailers and customer base: $\begin{array}{ll}
\text { Annual sales: } & 10,000 \text { trailers } \
\text { Annual production costs per trailer: } & \$ 1,500 \
\text { Lost sales if credit is not provided for customers: } & 2,000 \text { trailers } \
\text { Default rate if all customers purchase on credit: } & 3.00 \%
\end{array}$ What is the profit if the firm has a cash-only policy?
A)$12,000,000
B)$25,000,000
C)$8,000,000
D)$10,000,000

Question

Quizplus · Accepted Answer

With a cash-only policy, Little Runabout Inc. sells all its trailers without offering credit. The profit can be calculated as follows: Profit = (Selling Price per Trailer - Production Cost per Trailer) * Number of Trailers Sold. Given the annual sales of 10,000 trailers, a selling price of $2,500 per trailer, and a production cost of $1,500 per trailer, the profit is (2,500 - 1,500) * 10,000 = $1,000 * 10,000 = $10,000,000.

Little Runabout Inc What Is the Profit If the Firm Has a Cash-Only