Question

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

Answer 1

The Tradition Corporation

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

Step-by-step 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.