Happy Times currently has an all-cash credit policy. It is considering making a

Question

Happy Times currently has an all-cash credit policy. It is considering making a change in the credit policy by going to terms of net 30 days. Based on the following information, what is the break-even price per unit under the new credit policy? The required return is 0.80 percent per month. (Do not round intermediate calculations and round your answer to 2 decimal places. (e.g., 32.16)) THE ANSWER IS NOT INCOMPLETE

   

Current Policy New Policy   Price per unit $ 195 ?   Cost per unit $ 149 $ 153   Unit sales per month 1,440 1,480

Explanation / Answer

profit as per current policy = (195-149)*1440

                                       = $ 66240

To maintain 80% return = $ 66240*80% =$ 52992

Price to be charged = $ 52992/1480

                              =$35.80+$153 =$ 188.80

2 Total cost as per current policy =$149*1440 =$214560

Break even price as per new policy =214560/1480

                                                    =$144.97

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