Essence of Skunk Fragrances, Ltd., sells 6,100 units of its perfume collection e

Question

Essence of Skunk Fragrances, Ltd., sells 6,100 units of its perfume collection each year at a price per unit of $391. All sales are on credit with terms of 3/30, net 60. The discount is taken by 50 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).) 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 5/30, net 60 to preserve its market share. Will this change in policy increase or decrease accounts receivable?

Explanation / Answer

Total Credit sales = 6100*391 i.e 2385100

50% of customers = 2385100*0.50 i.e 1192550

Discount given to customers = 3%

Value to be received after discount = 1192550-(1192550*3%) +1192550

= 2349323.50

Total Credit sales = 6100*391 i.e 2385100

50% of customers = 2385100*0.50 i.e 1192550

Discount given to customers = 5%

Value to be received after discount = 1192550-(1192550*5%) +1192550

= 2325472.50

Increase in discount rate will lead to decline in accounts receivable balance

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