ALei Industries has credit sales of $148 million a year. ALei’s management revie

Question

ALei Industries has credit sales of $148 million a year. ALei’s management reviewed its credit policy and decided that it wants to maintain an average collection period of 35 days.

• What is the maximum level of accounts receivable that ALei can carry and have a 35-day average collection period? (round to one decimal place)

• If ALei's current accounts receivable collection period is 55 days, how much would it have to reduce its level of accounts receivable in order to achieve its goal of 35 days?

Explanation / Answer

Answer a.

Average Collection Period = 365 * Accounts Receivable / Credit Sales
35 = 365 * Accounts Receivable / $148,000,000
Accounts Receivable = $14,191,780.8

Answer b.

Average Collection Period = 365 * Accounts Receivable / Credit Sales
55 = 365 * Accounts Receivable / $148,000,000
Accounts Receivable = $22,301,369.9

Reduction in accounts receivable = $8,109,589.1 ($22,301,369.9 - $14,191,780.80)

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.