Happy Times currently has an all-cash credit policy. It is considering making a
ID: 2638911 • Letter: H
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 do you recommend? The required return is .95 percent per month.
Current Policy
New Policy
Price per unit
$ 150.00
$154.00
Cost per unit
$ 130.00
$ 133.00
Unit sales per month
1550
1580
Current Policy
New Policy
Price per unit
$ 150.00
$154.00
Cost per unit
$ 130.00
$ 133.00
Unit sales per month
1550
1580
Explanation / Answer
Old Policy Profit=(Selling Price-Cost Price)*Quantity=(150-130)*1550 31000 In the New Policy Profit==(Selling Price-Cost Price)*Quantity=(154-133)*1580-0.0095*154*1580 30868.46 The profit is less in new credit policy. So the old policy of cash system should be continued.
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