Question

Assume Atlantic Fish sells 3,200 pounds of fish per month at a price of $2.90 a pound. The variable cost per pound is $2.22. Currently, the firm has a cash-only sales policy. The firm is considering changing to a net 30 credit policy. The monthly required return is 1.2 percent. What does the new level of sales need to be to break-even on the switch

Answer 1

Answer:

The break-even level of sales is equal to 3372.64 pounds.

Explanation:

The quantity of fish sold per month is 3,200 pounds.

The price of fish is $2.90/pound.

The variable cost per pound is $2.22.

The monthly required return is 1.2%.

Contribution per unit will be

=Selling Price-Variable Cost

=$2.9-$2.22

=$0.68 per unit

Loss on account of changing to net 30 policy

=Quantity*Selling Price*required return

=Quantity*$2.9*1.2%

To break even, excess Contribution should be equal to loss on policy change

or,

Here, we assume quantity to be X

(X-3200)*$0.68 = X*$2.9*1.2%

(X-3200)*19.54= X

18.54X=$62,528.74

X=$\frac{62,528.74}{18.54}$

X=3372.64 pounds