68.
Saucier & Co. currently sells 2,100 units a
month for total monthly sales of $86,500.
The company is considering replacing its
current cash only credit policy with a net
30 policy. The variable cost per unit is $18
and the monthly interest rate is 1.2
percent. What is the switch break-even
level of sales? Assume the selling price
per unit and the variable costs per unit
remain constant.
A.
1,943
units
B.
2,117 units
C.
2,145 units
D.
2,406 units
E.
2,548 units

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Break-even point = Q′ - 2,100 = ($86,500)/
{[(($86,500/2,100) - $18)/0.012] - $18} =
45 units; Q′ = 2,100 + 45 = 2,145 units
AACSB: Analytic
Blooms: Analyze
Difficulty: 2 Medium
Learning Objective: 20-02 How to analyze the decision by a firm to grant credit.
Section: 20.3
Topic: Switch break-even point
69.
The Cellar Door currently sells 9,620 units
a month for total monthly sales of
$316,000. The company is considering
replacing its current cash only credit policy
with a net 30 policy. The variable cost per
unit is $15 and the monthly interest rate is
1.5 percent. What is the switch break-even
level of sales?
A.
9,711
units
B.
9,779 units
C.
9,814 units
D.
9,957 units
E.
9,889 units
Break-even point = Q′ - 9,620 =
($316,000)/{[(($316,000/9,620) -
$15)/0.015] - $15} = 269 units; Q′ = 9,620
+ 269 = 9,889 units
AACSB: Analytic
Blooms: Analyze
Difficulty: 2 Medium
Learning Objective: 20-02 How to analyze the decision by a firm to grant credit.
Section: 20.3
Topic: Switch break-even point
70.
You have the opportunity to make a one-
time sale if you will give a new customer
30 days to pay. You suspect there is a 10
percent chance this person will never pay
you. The sales price of the item the
customer wants to buy is $289. Your
variable cost on that item is $156 and your
monthly interest rate is 1.75 percent.

Should you grant credit to this customer?
Why or why not?
A.
yes; because the NPV of
the potential sale is $113.05
B.
yes; because the NPV of the potential sale is $99.63
C.
no; because the NPV of the potential sale is -$133.00
D.
no; because the NPV of the potential sale is -113.05
E.
no; because the NPV of the potential sale is -$89.65
NPV = -$156 + {[1 - 0.10] × [$289/(1 +
0.0175)]} = $99.63
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 20-02 How to analyze the decision by a firm to grant credit.
Section: 20.5
Topic: One-time sale
71.
You are considering renting a kiosk in the
local mall for a period of three months.
Any sale you make will be a one-time sale.
There is only a 79 percent chance you will
collect payment on a credit sale. The
product you want to sell has a variable
cost of $3.88 and a sales price of $4.99.
The monthly interest rate is 1.5 percent.
Should you offer people 30 days to pay?
Why or why not?
A.
yes; because the NPV of
a credit sale is $0.09.
B.
yes; because the NPV of a credit sale is $0.03.
C.
no; because the NPV of a credit sale is -$0.08.
D.
no; because the NPV of a credit sale is -$0.02.
E.
It doesn't matter because the NPV of a credit sale is a
NPV = -$3.88 + {0.79 × [$4.99/(1 +
0.015)]} = $0
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 20-02 How to analyze the decision by a firm to grant credit.