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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?

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    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

    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.