Receivables investment McDowell Industries sells on terms of 3/10, net 30. Total
ID: 2382927 • Letter: R
Question
Receivables investment
McDowell Industries sells on terms of 3/10, net 30. Total sales for the year are $540,500; 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 30th day? Round your answers to two decimal places.
DSO = days
Average receivables = $
Explanation / Answer
a 0.4(10) + 0.6(40) =28 days b $540,500/365 = $1480.82 sales per day. $1480.82 (28)= $41463.02= average receivables. result that all nondiscount customers paid on the 30th day 0.4(10)+0.6(30)=22 days $540,500/365= $1480.82 sales per day $1480.82 (22)= $32578.08= average receivables Sales may also decline as a result of the tighter credit. This would further reduce receivables. Also, some customers may now take discounts further reducing receivables.
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