Essence of Skunk Fragrances, Ltd., sells 7,500 units of its perfume collection e

Question

Essence of Skunk Fragrances, Ltd., sells 7,500 units of its perfume collection each year at a price per unit of $750. All sales are on credit with terms of 2.5/15, net 90. The discount is taken by 60 percent of the customers.

Calculate the average collection period. (Round your answer to 2 decimal places. (e.g., 32.16))

What is the receivables turnover? (Use 365 days a year. Do not round intermediate calculations and round your final answer to 3 decimal places. (e.g., 32.161))

What is the amount of the company

Essence of Skunk Fragrances, Ltd., sells 7,500 units of its perfume collection each year at a price per unit of $750. All sales are on credit with terms of 2.5/15, net 90. The discount is taken by 60 percent of the customers.

Explanation / Answer

Assuming 360 days in a year.

3. Total Sales = 7,500 x 750 = $5,625,000

Receivables realised in 15 days = 5,625,000 x 60% = $3,375,000
Receivables realised in 90 days = 5,625,000 x 40% = $2,250,000

Average Receivables = [(5,625,000 x 15) + (2,250,000 x 90)] / 360 = $796,875

2. Receivables Turnover = Net Sales / Average Receivables = 5,625,000 / 796,875 = 7.06 times

1. Average Collection Period = 360 / Receivables Turnover = 51 days

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