Essence of Skunk Fragrances, Ltd., sells 6,000 units of its perfume collection e
ID: 2713088 • Letter: E
Question
Essence of Skunk Fragrances, Ltd., sells 6,000 units of its perfume collection each year at a price per unit of $390. All sales are on credit with terms of 2/25, net 30. The discount is taken by 40 percent of the customers. (Enter your answer as directed, but do not round intermediate calculations.)
What is the amount of the company’s accounts receivable? (Round your answer to 2 decimal places (e.g., 32.16).)
In reaction to sales by its main competitor, Sewage Spray, Essence of Skunk is considering a change in its credit policy to terms of 4/25, net 30 to preserve its market share. Will this change in policy increase or decrease accounts receivable?
Essence of Skunk Fragrances, Ltd., sells 6,000 units of its perfume collection each year at a price per unit of $390. All sales are on credit with terms of 2/25, net 30. The discount is taken by 40 percent of the customers. (Enter your answer as directed, but do not round intermediate calculations.)
Explanation / Answer
Solution :
Requirement 1 :
2/25, net 30 : Take 2% discount if pay in 25 days, otherwise pay in 30 days
About 40% of the customers take discount i.e 0.4X 6000 = 2400 take discount
discounted price = 0.02 X $ 390
discounted price = $382.20
Accounts receivable = $ 382.20 X 2400 + $ 390 X 3600
Accounts receivable = $ 2,321,280
-------------------------------------------------------------------------------------------------------------------------------------------------
Requirement 2 :
Change in its credit policy to terms of 4/25, net 30 : Take 4% discount if pay in 25 days, otherwise pay in 30 days
discounted price = 0.04 X $ 390
discounted price = $ 374.40
Accounts receivable = $ 374.40 X 2400 + $ 390 X 3600
Accounts receivable = $ 2,302,560
----------------------------------------------------------------------------------------------------------------------
The change in policy will decrease accounts receivable.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.