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# Creidt Policy at Mucklehoney Sports

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Mucklehoney Sports operates a mail-order running shoe business. Management is considering adopting a credit policy to expand its business from an all sales for cash. The credit policy under consideration is as follows:

Credit CreditNo
Price per unit \$35 \$40
Cost per unit \$25 \$32
Quantity sold 2,000 3,000
Probability of payment 100% 85%
Credit period 0 1
Discount rate 0 3%

1. Should Mucklehoney offer credit to its customers?
2. What must the probability of payment be before Berkshire would adopt the policy?

#### Solution Preview

1. Cash policy:
Profit per unit=Price-Cost
Profit per unit=\$35-\$25
Profit per unit=\$10
Units sold * Profit per unit=Total Profit
2,000*\$10=\$20,000

Credit policy:
Profit per unit=Price-Cost
Profit per unit=\$40-\$32
Profit per unit=\$8
Units sold*Profit per ...

#### Solution Summary

The solution details the potential credit policy at Mucklehoney Sports. The probability of payment is also calculated.

\$2.19