Question

Mendoza lighting sells 72 units per month at an average price of $529 per unit. the company thinks it can increase sales by an additional 24 units per month if it switches to a net 30 credit policy. the monthly interest rate is .32 percent and the variable cost per unit is $317. what is the incremental cash inflow of the proposed change in the credit policy?

Answer 1

The incremental cash inflow of the proposed change in the credit policy is $35,460.

Step-by-step explanation:

The incremental cash inflow of the proposed change in the credit policy can be calculated by finding the increase in sales revenue and subtracting the increase in variable costs.

First, let's calculate the increase in sales revenue. Originally, Mendoza Lighting sells 72 units per month at an average price of $529 per unit, which equals a monthly revenue of 72 * $529 = $38,088.

With the proposed change in credit policy, the company anticipates an additional 24 units per month, so the new sales revenue would be (72 + 24) * $529 = $64,104.

Next, let's calculate the increase in variable costs.

The variable cost per unit is $317, so the original monthly variable costs would be 72 * $317 = $22,824.

With the additional 24 units, the new monthly variable costs would be (72 + 24) * $317 = $28,644.

To find the incremental cash inflow, subtract the increase in variable costs from the increase in sales revenue: $64,104 - $28,644 = $35,460.

Therefore, the incremental cash inflow of the proposed change in the credit policy is $35,460.