Problem 28-17 Break-Even Quantity The Harrington Corporation is considering a ch

Question

Problem 28-17 Break-Even Quantity

The Harrington Corporation is considering a change in its cash-only policy. The new terms would be net one period. The required return is 2.0 percent per period.

What is the break-even quantity for the new credit policy? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

The Harrington Corporation is considering a change in its cash-only policy. The new terms would be net one period. The required return is 2.0 percent per period.

Explanation / Answer

Current Policy

Net profit = Sales - Variable Costs - Fixed costs = 0

3200*74 - 3200*38 - Fixed costs = 0

Fixed costs = 115200

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New Policy

sales per month = 76*Q

Sales of each month will be received next month

PV of sales per month = 76*Q/(1+2%) = 76/1.02*Q

Net profit = Sales - Variable Costs - Fixed costs = 76/1.02*Q - 38*Q - 115200 = 0

Q = 3155.32

The break-even quantity for the new credit policy is 3155.32 units

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