Receivables Investment Snider Industries sells on terms of 3/10, net 20. Total s
ID: 2650822 • Letter: R
Question
Receivables Investment
Snider Industries sells on terms of 3/10, net 20. Total sales for the year are $1,487,500. Thirty percent of the customers pay on the 10th day and take discounts; the other 70% pay, on average, 38 days after their purchases. Assume 365 days in year for your calculations.
What is the days sales outstanding? Round your answer to one decimal place.
days
What is the average amount of receivables? Round your answer to the nearest dollar.
$
What would happen to average receivables if Snider toughened up on its collection policy with the result that all nondiscount customers paid on the 20th day? Round your answer to the nearest dollar.
$
Explanation / Answer
Days sales outstanding:
Given 30% of the customers pay on the 10th day and 70% of the customers pay on the 38th day. Therefore, days sales outstanding comes to 10*30%+38* 70% =3+26.6 =29.6 days.
Average amount of receivables:
Formula for days sales outstanding is (Average accounts receivable/Total credit sales)* number of days.
29.6=( Average accounts receivable/$1,487,500)* 365
Average accounts receivable =($1487500/365)*29.6
Average accounts receivable=$120,630.137 rounded to $120,630
Creidt terms modified:
revised days sales outstanding =30%*10+70%*20 =3+14 =17 days
Average accounts receivable = ($1487500/365)*17
Average accounts receivable =$69,280.82 rounded to $69,281.
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