Question

The Snedecker Corporation is considering a change in its cash-only policy. The new terms would be net one period. The required return is 2.5 percent per period. Based on the following information, what is the break-even price per unit that should be charged under the new credit policy? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Price per unit Cost per unit Unit sales per month Current Policy $ 85 $ 45 4,250 New Policy ? $ 45 4,500 Break-even price

Answer 1

Solution:

Break even price = [(profit under current policy /units sold under new policy) + cost per unit] *( 1+ return)

Break even price = [( 85-45)*4250)/4500)+45]*(1+0.025)

Break even price = [(40*4250)/4500)+45]*1.025

Break even price = [(170000/4500)+45]*1.025

Break even price = $84.85