Question

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 10^th day and take discounts, while the other 60% pay, on average, 90 days after their purchases. Assume 365 days in year for your calculations.

1. What is the days sales outstanding? Round your answer to two decimal places.
     days
2. What is the average amount of receivables? Round your answer to the nearest cent. Do not round intermediate calculations.
   $
3. What is the percentage cost of trade credit to customers who take the discount? Round your answers to two decimal places.
   %
4. What is the percentage cost of trade credit to customers who do not take the discount and pay in 90 days? Round your answers to two decimal places. Do not round intermediate calculations.

   Nominal cost:	%
   Effective cost:	%

Answer 1

a. What is the days sales outstanding?

ANSWER =  DSO = ACP = 0.4(10 days) +0.6(90 days) = 58 days

b. What is the average amount of receivables?

ANSWER = ($1,150,000 x 46 days )/ 365 = $182739.73

c. What is the percentage cost of trade credit to customers who take the discount?

ANSWER = who pay by the 10^th for the discount get Free trade credit

d. What is the percentage cost of trade credit to customers who do not take the discount and pay in 90 days?

ANSWER =

1.Nominal cost: 3/97 * 365/90-10 = 3.093 x 4.5625 = 14.11%

2.Effective cost: (1.03093)^4.5625 - 1= 0.1491 = 14.91%