Receivables investment McDowell Industries sells on terms of 3/10, net 40. Total
ID: 2382753 • Letter: R
Question
Receivables investment
McDowell Industries sells on terms of 3/10, net 40. Total sales for the year are $779,500; 40% of the customers pay on the 10th day and take discounts, while the other 60% pay, on average, 54 days after their purchases. Assume 365 days in year for your calculations.
What is the days' sales outstanding? Round your answer to two decimal places.
days
What is the average amount of receivables? Round your answer to the nearest cent.
$
What is the percentage cost of trade credit to customers who take the discount? Round your answer to two decimal places.
%
What is the percentage cost of trade credit to customers who do not take the discount and pay on Day 54? Round your answers to two decimal places.
Nominal cost: %
Effective cost: %
What would happen to McDowell’s accounts receivables if McDowell toughened up on its collection policy with the result that all nondiscount customers paid on the 40th day? Round your answers to two decimal places.
DSO = days
Average receivables = $
Explanation / Answer
Daily Sales Outstanding = Accounts Receivables/Annual Sales on Credit * 365
= 467700/779,500*365
= 219 days
Average Amount of Receivables = Annual Sales/365
= 779500/365 = $ 2135.61
Percentage Cost of Trade Credit = Total Discount Availed/Total Credit Sales
Total Discount Availed = 3% * 311800 = 9354
= 9354/779,500 = 1.2%
Annual Sales on Credit 779,500 Accounts Receivable 467700 (60%*Annual Sales)Related Questions
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