Essence of Skunk Fragrances, Ltd., sells 5,500 units of its perfume collection e

Question

Essence of Skunk Fragrances, Ltd., sells 5,500 units of its perfume collection each year at a price per unit of $385. All sales are on credit with terms of 3/20, net 40. The discount is taken by 45 percent of the customers. (Enter your answer as directed, but do not round intermediate calculations.) Requirement 1: What is the amount of the company’s accounts receivable? (Round your answer to 2 decimal places (e.g., 32.16).) Average receivables $ Requirement 2: In reaction to sales by its main competitor, Sewage Spray, Essence of Skunk is considering a change in its credit policy to terms of 5/20, net 40 to preserve its market share. Will this change in policy increase or decrease accounts receivable?

Explanation / Answer

Sales To customers = 5500*45 i.e 247500

Discount availed by custtomer = 247500*45% i.e 111375

Disount given to customer = 111375*3% i.e 3341

Amount to be received from customer availing discount = 111375-3341 i.e 108033

Amount to be received from customer not taking disount = 247500-111375 i.e 136125

Total average accounts receivable = 108033+136125 i.e 244158

This change will decrease the accounts receivable as the customer will buy from sewege spray , essence of skunk and the sales of the company will decrease resulting in decrease in accounts receivable

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