DISCOUNT POLICY AND GROSS MARGIN Compton Audio sells MP3 players. During 2008, Compton sold 1,000 units at an average of $300 per unit. Each unit cost Compton $180. At present, Compton offers no sales discounts. Compton’s controller suggests that a generous sales discount policy would increase annual sales to 1,400 units and also improve cash flow. She proposes 7/10, n/30 and believes that 80 percent of the customers will take advantage of the discount.

Required:
. If the controller is correct, determine how much the new sales discount policy would add to net sales.
. Explain why the sales discount policy might improve cash flow.