Trinity Surgical Supplies, Inc. sells on terms of 2/10, net 30. Net sales for th

Question

Trinity Surgical Supplies, Inc. sells on terms of 2/10, net 30. Net sales for the year are $1.5 million, and the collections department estimates that 25 the customers pay on the tenth day and take discounts: 50 percent pay on the thirtieth day;and the remaining 25 percent pay, on average, 40 days after t purchase. (Assume 360 days per year.) 27.5 days . What is the firm's average collection period? Note: Format is "xxx days . What is the firm's current receivables balance? Note: Format is $xoox,xox What would be the firm's new receivables balance if Trinity Surgical toughened up on its collection policy, with the result that all nondiscount customers paid on the 30th day? Note: Format is $xx.Xxx Suppose that the firm's cost of carrying receivables was 10 percent annually How much would the toughened credit policy save the f annual receivables carrying expense? (Assume that the entire amount of the receivables had to be financed.) Note: Format is Sk,00x

Explanation / Answer

Average collection period = =10*25%+ 50%*30+ 25%*40 = 27.5 days

Current receivables balance= =1500000*27.5/360=

New average collection period = =10*25%+ 75%*30 = 25 days

New receivables balance= 1500000*25/360 =

Saving in cost = Difference in receivable balanace*10% = (114583.333- 104166.667)*10%

=

114583.333

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