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The Tradition Corporation is considering a change in its cash-only policy. The new terms would be net one period. The required return is 2.4 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 $ 93 $ 44 2.675
New Policy ? $ 44 2,750

Sagot :

Anthougoidn

Answer:

The Tradition Corporation

The break-even price per unit that should be charged under the new credit policy is $95.23.

Explanation:

a) Data and Calculations:

Required rate of return = 2.4% per period

                             Price      Cost      Unit Sales    Total Sales   Total Cost

                          per unit  per unit   per month     Revenue

Current Policy      $ 93       $ 44        2,675         $248,775     $117,700

New Policy                ?        $ 44        2,750        

New price = $93 * 1.024 = $95.23

b) The new price of $95.23 with the required rate of return will ensure that revenue is not lost as a result of the new credit policy.  This implies that all things being equal, The Tradition Corporation would still be in a position to make the normal revenue that it was making under the cash policy.

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