- Determine what level of sales would result in a break-even of incremental profits given the proposed change in policy.??

what level of sales is needed to breakeven?

Appendix 2 Analysis of Credit Policy Current Policy Proposed Policy Net Change Sales $ $ $ Gross Credit Sales Less Uncollectible Net Credit Sales 2,000,000 -40,000 0 1,960,0000 2,400,000 -120,000 2,280,000 400,000 -80,000 320,000 Discount Customers Less Discount Net Discount Customers 1,372,000 0 -27,440 0 1,344,5600 1,800,000 -36,000 1,764,000 428,000 -8,560 419,440 Non-discount Customers Add back Uncollectible 588,0000 40,0000 600,000 100,000 12,000 60,000 Total Net Sales 1,972,5600 2,464,000 491,440 Cost of Sales Discount Customers Non-discount Customers Uncollectible Total Cost of Sales 823,200 0 352,800 0 24,000 0 1,200,000 0 1,080,000 360,000 60,000 1,500,000 256,800 7,200 36,000 300,000 Profit Before Credit Costs and Taxes 772,560 0 964,000 191,440 Credit Related Costs 5,417 Carrying Costs Bad Debt Losses Total Credit Related Costs 5,833 0 40 0 45,833 0 11,250 100,000 111,250 65,417 Profit Before Taxes & Operating Costs Taxes Change in Profit before Operating costs 726,727 0 290,691 0 852,750 341,100 852,750 50,409 436,0360 511,650 75,614 Appendix 1 Existing Policy Proposed Policy Annual Sales $2,000,000 $2,400,000 Credit Terms 2/10 net 30 2/15 net 40 Percent Taking Discount 70% 75% Percent Bad Debt 2% 5% Cost of Sales 60% 60% Repayment Patterns 10 days: 70% 30 days: 25% 60 days: 5% 15 days: 75% 45 days: 15% 90 days: 10% Days Sales Outstanding 17.5 25 Cost of Capital 10% 10% Tax Rate 40% 40%