Essence of Skunk Fragrances, Ltd., sells 6,200 units of its perfume collection e

Question

Essence of Skunk Fragrances, Ltd., sells 6,200 units of its perfume collection each year at a price per unit of $392. All sales are on credit with terms of 1/10, net 50. The discount is taken by 35 percent of the customers. (Enter your answer as directed, but do not round intermediate calculations.)

What is the amount of the company

Essence of Skunk Fragrances, Ltd., sells 6,200 units of its perfume collection each year at a price per unit of $392. All sales are on credit with terms of 1/10, net 50. The discount is taken by 35 percent of the customers. (Enter your answer as directed, but do not round intermediate calculations.)

Explanation / Answer

Answer-1. Sales=6200*$392=$2430400

Discount availed by 35% customers @1%

Discount=$2430400*35%*1%=$8506.40

The average collection period is the sum of the percentage of customers taking the discount multiplying by the discount period and the percentage of customers not opting for discount multiplying by the actual credit period allowed.

Average collection period = .35(10) + .65(40) = 29.5 days

Receivables turnover ratio = 365/average collection period = 365/29.5 = 12.37 times

Average receivables = Credit sales/Receivables turnover ratio = $2,430,400/12.37 = $196,475.34

2. Sales=6200*$392=$2430400

If 35% Customer avail discount 3% then discount=$25519.20

Accounts Receivable=$2430400-$25519.20=$2404880.80

change in policy decrease accounts receivable

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