Question

Jungle, Inc., 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 .83 percent per month. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Current Policy New Policy
Price per unit $ 210 ?
Cost per unit $ 158 $ 163
Unit sales per month 1,530 1,570


Break-even price $

Answer 1

Answer:

The break even price is $215.45

Explanation:

Break even Price = [ (Profit as per existing policy / Units under new policy) + Cost] × (1 + Required Return)

=({ [ (Selling Price - Cost) × Units sold under under existing policy] / Units under new policy} + Cost )× (1 + Required Return)

=( { [($210 - $158) × 1530] / 1570 }+ 163 )×  ( 1 + 0.83%)

= ( { [ 52 ×  1530] / 1570} + 163 ) ×  (1.0083)

= ( [79560 / 1570] + 163) ×  1.0083

= [ 50.68 + 163] ×  1.0083

= 213.68 ×  1.0083

= 215.45