McEwan Industries sells on terms of 3/10, net 35. Total sales for the year are $
ID: 2786753 • Letter: M
Question
McEwan Industries sells on terms of 3/10, net 35. Total sales for the year are $1,815,500; 40% of the customers pay on the 10th day and take discounts, while the other 60% pay, on average, 66 days after their purchases. Assume 365 days in year for your calculations.
What is the days sales outstanding? Round your answer to two decimal places.
_______days
What is the average amount of receivables? Round your answer to the nearest cent. Do not round intermediate calculations.
______$
What is the percentage cost of trade credit to customers who take the discount? Round your answers to two decimal places.
_______%
What is the percentage cost of trade credit to customers who do not take the discount and pay in 66 days? Round your answers to two decimal places. Do not round intermediate calculations.
What would happen to McEwan’s accounts receivable if it toughened up on its collection policy with the result that all nondiscount customers paid on the 35th day? Round your answers to two decimal places. Do not round intermediate calculations.
Days sales outstanding (DSO) = ________ days
Average receivables = $____________
Explanation / Answer
1)
days sales outstanding:
40% of them pays at the 10th day
60% of them pays after 66 days
Hence (% of them pays at the 10th day) * 10 + (% of them pays after 66 days) * 66
= (0.4 * 10) + (0.6 * 66) = 43.6 days
days sales outstanding = 43.6
2)
average amount of receivables:
total sales / 365 = 1,815,500 / 365 = 4973.97
(4973.97) * days sales outstanding
= (4973.97) * 43.6
= 2,16,865.2
average amount of receivables = 2,16,865.2
5)
a) Days sales outstanding (DSO)
(% of them pays at the 10th day) * 10 + (% of them pays after 35th day) * 35
= 0.4* 10 + 0.6 * 35 = 25 days
b) Average receivables
total sales / 365 = 1,815,500 / 365 = 4973.97
(4973.97) * Days sales outstanding in this case = (4973.97) * 25 = 1,24,349.25
Average receivables = 1,24,349.25