Problem 20-18 Credit Markup [LO2] The Snedecker Corporation is considering a cha

Question

Problem 20-18 Credit Markup [LO2] 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.) Current Policy $ 81 $ 41 3,650 New Policy Price per unit Cost per unit Unit sales per month $ 41 3,900 Break-even price

Explanation / Answer

So the break even price = 80.45

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Let’s assume the break even price is X.

Current contribution margin = sales * (sale price – cost )

                                                         = 3650* (81- 41)

                                                           = 3650* 40

                                                                = $146000

Break even price will be calculated as follows

(sales price – cost – sale price* 2.5%)* 3900 = CM

(X – 41 – 0.025X) = 146000/3900

0.975X – 41 = 37.44

0.975X = 80.45

X = 80.45

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Hope this answer your query.

Feel free to comment if you need further assistance. J

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