DISCOUNT POLICY AND GROSS MARGIN

Parker Electronics sells cell phones. During 2008, Parker sold 1,500 units at an average of $250 per unit. Each unit cost Parker $120. At present, Parker offers no sales discounts. Parker’s controller suggests that a generous sales discount policy would increase annual sales to 2,000 units and also improve cash flow. She proposes 6/15, n/20 and believes that 75 percent of the customers will take advantage of the discount.