Question

Currently, Cathy's Shirt Shop sells 498 units a month at an average price of $98 a unit. The company thiks it can increase sales by an additional 140 units a month if it switches to a net 30 credit policy. The monthly interest rate is .45 percent and the variable cost per unit is $55. What is the incremental cash inflow of the proposed credit policy switch?

Answer 1

$6,020

Step-by-step explanation:

Calculation for the incremental cash inflow

Using this formula

Incremental cash flow=(Average price per units-Variable cost per unit)*Additional units

Let plug in the formula

Incremental cash flow = ($98 - $55)*140 units

Incremental cash flow=$43*140 units

Incremental cash flow= $6,020

Therefore the incremental cash inflow will be $6,020