Locust Software sells computer training packages to its business customers at a price of $101. The cost of production (in present value terms) is $99. Locust sells its packages on terms of net 30 and estimates that about 7% of all orders will be uncollectible. An order comes in for 30 units. The interest rate is 1.3% per month. Required: a-1. Calculate the profit or loss if this is a one-time order and sale will not be made unless credit is extended a-2. Should the firm extend credit if this is a one-time order? b. What is the break-even probability of collection? c-1. Now suppose that if the customer pays this month's bill, they will place an identical order in each month indefinitely and can be safely assumed to pose no risk of default.Calculate the present value of the sale. c-2. Should credit be extended? d. What is the break-even probability of collection in the repeat-sales case? Complete this question by entering your answers in the tabs below. Req A1 A2 and Req C1 C2 and в D a-1. Calculate the profit or loss if this is a one-time order and sale will not be made unless credit is extended. (Do not round intermediate calculations. Negative answer should be indicated by minus sign. Round your answer to 2 decimal places.) a-2. Should the firm extend credit if this is a one-time order? b. What is the break-even probability of collection? (Do not round intermediate calculations. Round your answer to percentage with 2 decimal places.) Show lessA a-1. Loss (188.26) Should the firm extend credit if this is a one- time order? а-2. Break-even probahility %24

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Locust Software sells computer training packages to its business customers at a price of $101. The cost of production (in present value
terms) is $99. Locust sells its packages on terms of net 30 and estimates that about 7% of all orders will be uncollectible. An order
comes in for 30 units. The interest rate is 1.3% per month.
Required:
a-1. Calculate the profit or loss if this is a one-time order and sale will not be made unless credit is extended
a-2. Should the firm extend credit if this is a one-time order?
b. What is the break-even probability of collection?
c-1. Now suppose that if the customer pays this month's bill, they will place an identical order in each month indefinitely and can be
safely assumed to pose no risk of default.Calculate the present value of the sale.
c-2. Should credit be extended?
d. What is the break-even probability of collection in the repeat-sales case?
Complete this question by entering your answers in the tabs below.
Req A1 A2 and Req C1 C2 and
в
D
a-1. Calculate the profit or loss if this is a one-time order and sale will not be made unless credit is extended. (Do not round
intermediate calculations. Negative answer should be indicated by minus sign. Round your answer to 2 decimal places.)
a-2. Should the firm extend credit if this is a one-time order?
b. What is the break-even probability of collection? (Do not round intermediate calculations. Round your answer to percentage
with 2 decimal places.)
Show less A
a-1.
Loss
v: $
(188.26)
Should the firm extend credit if this is a one-
а-2.
time order?
b.
Break-even probability
%

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“Since you have posted a question with multiple sub-parts, we will solve the first three sub-parts for you. To get the remaining sub-part solved please repost the complete question and mention the sub-parts to be solved.”

Break-even point is referred to as that point where the business has no profit and no loss and maintaining a neutral position. It could be taken as the point where total sales stands equal to the total expenses incurred.

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