Essence of Skunk Fragrances, Ltd., sells 5,600 units of its perfume collection e

Question

Essence of Skunk Fragrances, Ltd., sells 5,600 units of its perfume collection each year at a price per unit of $386. All sales are on credit with terms of 1/25, net 60. 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).)

Essence of Skunk Fragrances, Ltd., sells 5,600 units of its perfume collection each year at a price per unit of $386. All sales are on credit with terms of 1/25, net 60. The discount is taken by 40 percent of the customers. (Enter your answer as directed, but do not round intermediate calculations.)

Explanation / Answer

Number of unit sell = 5,600

Price per unit = $386

Annual sale = 5,600 × $386

                    = $2,161,600

Annual sale is $2,161,600

So daily sale = $2,161,600 / 365

                      = $5,922.20

Terms of 1/25, net 60 mean the person who pay within 25 days will get 1% discount and maximum within 60 days all the payment should be paid.

Total value of discount = $5,922.20 × 25 × 1%

                                      = $1,480.55

40% of customer get discount that is 25% of customer pay within 25 days and remaining pays of 60th days.

Total account receivables day = 40% × 25 + 60% × 60

                                                 = 10 + 36

                                                 = 46 days

Value of account receivables = 46 × $5,922.20 - $1,480.55

                                                = $272,421.2 - $1,480.55

                                                = $270,940.65

Hence, value of account receivables is $270,940.65.

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