Your company currently sells a product with a variable cost per unit of $16 and a unit selling price of $31. At the present time, your company only sells on a cash basis and has monthly sales of 310 units. The monthly interest rate is 2 percent. Your company is considering switching to a net 30 credit policy. What is the switch break-even point?
A) 312 units
B) 316 units
C) 320 units
D) 323 units
E) 329 units

Question

Quizplus · Accepted Answer

The switch break-even point is calculated by considering the additional cost of offering credit, which is the opportunity cost of not having cash immediately. The contribution margin per unit is $31 - $16 = $15. The interest cost per unit is 2% of $31, which is $0.62. The break-even point is where the additional units sold cover the interest cost: 310 + (310 * 0.62 / 15) = 323 units.

Your Company Currently Sells a Product with a Variable Cost