Holooly Plus Logo
Holooly Plus Logo

Question 20.S-TP.1: Credit Policy The Cold Fusion Corp. (manufacturer of the Mr....

Credit Policy The Cold Fusion Corp. (manufacturer of the Mr. Fusion home power plant) is considering a new credit policy. The current policy is cash only. The new policy would involve extending credit for one period. Based on the following information, determine if a switch is advisable. The interest rate is 2 percent per period:

Current Policy New Policy
Price per unit $   175 $   175
Cost per unit $   130 $   130
Sales per period in units 1,000 1,100
The "Step-by-Step Explanation" refers to a detailed and sequential breakdown of the solution or reasoning behind the answer. This comprehensive explanation walks through each step of the answer, offering you clarity and understanding.
Our explanations are based on the best information we have, but they may not always be right or fit every situation.
The blue check mark means that this solution has been answered and checked by an expert. This guarantees that the final answer is accurate.
Learn more on how we answer questions.
This Question has been Answered.
Subscribe
Already have an account?
Login

Related Answered Questions

Question: 20.4

Based on our previous two examples, what size orders should Thiewes place to minimize costs? How often will Thiewes restock? What are the total carrying and restocking costs? The total costs? ...

Verified Answer:

We know that the total number of pairs of boots or...
Question: 20.S-TP.2

Credit Where Credit Is Due You are trying to decide whether or not to extend credit to a particular customer. Your variable cost is $15 per unit; the selling price is $22. This customer wants to buy 1,000 units today and pay in 30 days. You think there is a 15 percent chance of default. The ...

Verified Answer:

If the customer pays in 30 days, then you will col...
Question: 20.S-TP.3

The EOQ Annondale Manufacturing starts each period with 10,000 “Long John” golf clubs in stock. This stock is depleted each month and reordered. If the carrying cost per golf club is $1, and the fixed order cost is $5, is Annondale following an economically advisable strategy? ...

Verified Answer:

We can answer by first calculating Annondale’s car...
Question: 20.1

We’d Rather Fight Than Switch Suppose a company is considering a switch from all cash to net 30, but the quantity sold is not expected to change. What is the NPV of the switch? Explain. ...

Verified Answer:

In this case, Q′ − Q is zero, so the NPV is −PQ. W...
Question: 20.3

Restocking Costs In Example 20.2, suppose Thiewes sells a total of 600 pairs of boots in a year. How many times per year does Thiewes restock? Suppose the restocking cost is $20 per order. What are total restocking costs? ...

Verified Answer:

Thiewes orders 100 items each time. Total sales ar...
Question: 20.2

Carrying Costs Thiewes Shoes begins each period with 100 pairs of hiking boots in stock. This stock is depleted each period and reordered. If the carrying cost per pair of boots per year is $3, what are the total carrying costs for the hiking boots? ...

Verified Answer:

Inventories always start at 100 items and end up a...
Question: 20.A.1

Extra Credit Looking back at Locust Software, determine the NPV of the switch if the quantity sold is projected to increase by only 5 units instead of 10. What will be the investment in receivables? What is the carrying cost? What is the monthly net benefit from switching? ...

Verified Answer:

If the switch is made, Locust gives up P × Q = $4,...