(Appendixes) DISCOUNT POLICY AND GROSS MARGIN. Compton Electronics sells Motorola cellular phones. During 19x8, Compton sold 1,000 units for $300 per unit. Each unit costs Compton $180. At present, Compton offers no sales discount. 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% of Compton’s sales would qualify for the discount. LO5 REQUIRED:

1. If the controller is correct, how much would the new sales discount policy add to gross margin?

2. Why might the sales discount policy improve cash flow?