Trinity Surgical Supplies, Inc. sells on terms of 2/10, net 30. Gross sales for the year...

Trinity Surgical Supplies, Inc. sells on terms of 2/10, net 30. Gross sales for the year are $1.5 million, and the collections department estimates that 25 percent of the customers pay on the tenth day and take discounts; 50 percent pay on the thirtieth day; and the remaining 25 percent pay, on average, 40 days after the purchase. (Assume 360 days per year.) a. What is the firm's average collection period? b. What is the firm's current receivables balance? c. What would be the firm's new receivables balance if Trinity Surgical toughened up on its collection policy, with the result that all nondiscount customers paid on the 30th day? d. Suppose that the firm's cost of carrying receivables was 10 percent annually. How much would the toughened credit policy save the firm in annual receivables carrying expense? (Assume that the entire amount of the receivables had to be financed.)

Please Show in Excel

Solutions

Expert Solution

Answer (a):

Firm's average collection period = 27.5 days

Answer (b):

Firm's current receivables balance = $114,583.33

Working:

Firm's current receivables balance = Gross sales for the year / 360 * Firm's average collection period

=1500000 /360 * 27.5

= $114,583.33

Answer (c):

Firm's new receivables balance = $104,166.67

Working:

Firm's new average collection period = 25 days

Firm's new current receivables balance = Gross sales for the year / 360 * Firm's average collection period

=1500000 /360 * 25

= $104,166.67

Answer (d):

Saving in annual receivables carrying expense = (Firm's new current receivables balance - Firm's old current receivables balance) * cost of carrying receivables

= ($114,583.33 - $104,166.67) * 10%

=$1,041.67

Saving in annual receivables carrying expense = $1,041.67

jeff jeffy answered 3 weeks ago

Next > < Previous

Related Solutions

Milberg Manufacturing sells on terms of 2/10, net 30. Total sales for the year are ...

Milberg Manufacturing sells on terms of 2/10, net 30. Total sales for the year are $3,500,000. Twenty five percent of customers pay on the 10th day and take discounts; the other 75% pay, on average, 45 days after their purchases. a. What is the days sales outstanding? b. What is the average amount of receivables? c. What would happen to average receivables if Snider toughened its collection policy with the result that all nondiscount customers...

Grunewald Industries sells on terms of 1/10, net 30. Gross sales last year were $4,342,000 and...

Grunewald Industries sells on terms of 1/10, net 30. Gross sales last year were $4,342,000 and accounts receivable averaged $475,000. Half of Grunewald's customers paid on the 10th day and took discounts. What are the nominal and effective costs of trade credit to Grunewald's nondiscount customers? (Hint: Calculate daily sales based on a 365-day year, calculate the average receivables for discount customers, and then find the DSO for the nondiscount customers.) Do not round intermediate calculations. Round your answers to...

Edit question Grunewald Industries sells on terms of 3/10, net 30. Gross sales last year were...

Edit question Grunewald Industries sells on terms of 3/10, net 30. Gross sales last year were $4,672,000 and accounts receivable averaged $320,000. Half of Grunewald's customers paid on the 10th day and took discounts. What are the nominal and effective costs of trade credit to Grunewald's nondiscount customers? (Hint: Calculate daily sales based on a 365-day year, calculate the average receivables for discount customers, and then find the DSO for the nondiscount customers.) Do not round intermediate calculations. Round your...

Cost of Trade Credit Grunewald Industries sells on terms of 3/10, net 30. Gross sales last...

Cost of Trade Credit Grunewald Industries sells on terms of 3/10, net 30. Gross sales last year were $4,964,000 and accounts receivable averaged $476,000. Half of Grunewald's customers paid on the 10th day and took discounts. What are the nominal and effective costs of trade credit to Grunewald's nondiscount customers? (Hint: Calculate daily sales based on a 365-day year, calculate the average receivables for discount customers, and then find the DSO for the nondiscount customers.) Do not round intermediate calculations....

McEwan Industries sells on terms of 3/10, net 30. Total sales for the year are $1,150,000;...

McEwan Industries sells on terms of 3/10, net 30. Total sales for the year are $1,150,000; 40% of the customers pay on the 10th day and take discounts, while the other 60% pay, on average, 90 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...

McEwan Industries sells on terms of 3/10, net 30. Total sales for the year are $794,000;...

McEwan Industries sells on terms of 3/10, net 30. Total sales for the year are $794,000; 40% of the customers pay on the 10th day and take discounts, while the other 60% pay, on average, 90 days after their purchases. Assume 365 days in year for your calculations. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. What is the days sales outstanding? Round...

Morrissey Industries sells on terms of 3/10, net 30. Total sales for the year are $900,000

Morrissey Industries sells on terms of 3/10, net 30. Total sales for the year are $900,000. Forty percent of the customers pay on Day 10 and take discounts; the other 60 percent pay, on average, 40 days after their purchases. What are (a) the days sales outstanding (DSO) and (b) the average amount of receivables? (c) What would happen to average receivables if Morrissey tightened its collection policy with the result that all non-discount customers paid on Day 30?

McEwan Industries sells on terms of 3/10, net 30. Total sales for the year are $1,353,000;...

McEwan Industries sells on terms of 3/10, net 30. Total sales for the year are $1,353,000; 40% of the customers pay on the 10th day and take discounts, while the other 60% pay, on average, 62 days after their purchases. Assume 365 days in year for your calculations. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. What is the days sales outstanding? Round...

Grunewald Industries sells on terms of 3/10, net 60. Gross sales last year were $4,916,500 and...

Grunewald Industries sells on terms of 3/10, net 60. Gross sales last year were $4,916,500 and accounts receivable averaged $480,500. Half of Grunewald's customers paid on the 10th day and took discounts. What are the nominal and effective costs of trade credit to Grunewald's nondiscount customers? (Hint: Calculate daily sales based on a 365-day year, calculate the average receivables for discount customers, and then find the DSO for the nondiscount customers.) Do not round intermediate calculations. Round your answers to...

Receivables Investment McEwan Industries sells on terms of 3/10, net 30. Total sales for the year...

Receivables Investment McEwan Industries sells on terms of 3/10, net 30. Total sales for the year are $1,921,000; 40% of the customers pay on the 10th day and take discounts, while the other 60% pay, on average, 70 days after their purchases. What is the days sales outstanding? .40 * 10 + .60 * 70 4 + 42 days days sales outstanding = 46 days What is the average amount of receivables? 1,921,000*46/365 $242,098.63 What is the percentage cost of...

Subjects