Your Current Sales Consist of 40 Units Per Month at a Price

question 119

Multiple Choice

Your current sales consist of 40 units per month at a price of $125 a unit. You are weighing the pros and cons of switching to a net 30 credit policy from your current cash only policy. If you decide to switch your credit policy you also plan to increase the sales price to $139 a unit. The monthly interest rate is 1.5 percent. What is the break-even default rate of the proposed switch?

• A) 8.25 percent
• B) 8.42 percent
• C) 8.67 percent
• D) 8.72 percent
• E) 9.06 percent

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Definitions:

Responsibility Centre

A business segment or department for which a manager has authority and responsibility for certain activities, performance, and outcomes.

Allocation Base

A criterion or standard used to distribute overhead costs among various cost objects, such as products or projects.

Reciprocal Services

Transactions in which services are exchanged between departments or units within an organization, often involving an allocation of costs.

Mutual Provision

The practice of supplying and receiving goods or services among a group or organizations, based on cooperative agreement rather than market competition.