A Firm Currently Sells Its Product with a 2% Discount

question 77

Multiple Choice

A firm currently sells its product with a 2% discount to customers who pay by cash or credit card when they purchase one of the firm's products; otherwise,the full price is due within 30 days.Forty percent of customers take advantage of the discount.The firm plans to drop the discount so the new terms will simply be net 30.In doing so it expects to sell 100 fewer units per month and all customers to pay at day 30.The firm currently sells 1000 units per month at a cost per unit of $45 and a selling price per unit of $80.If the firm's required return is 2%,what is the net present value (NPV) of making this change?

• A)-$169,860
• B)-$122,420
• C)$64,490
• D)$172,320
• E)$184,730

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Definitions:

Continuous Basis

Operations or processes that are carried out without interruption, constantly over time.

Process Cost System

An accounting method used in manufacturing where costs are assigned to units of product as they move through the production process.

Job Order Cost Cards

Records that detail the specific costs (materials, labor, and overhead) associated with a particular job or batch of products.

Conversion Costs

Costs in manufacturing that include direct labor and overhead expenses involved in converting raw materials into finished products.