Question

Snider Industries sells on terms of 3/10 net 35. Total sales for the year are $1500000. Thirty percent of customers pay in the 10th day and take discounts. the other day 70% pay on average 40 days after their purchases. Assume 365 days in year for your calculations.

a. What is the days sales outstanding ?

b. what is the average amount if receivables?

c. What would happen to average receivables if Snider toughened its collection policy with the result that all nondiscount customers paid on the 35th day?

Answer 1

a: days sales outstanding = Sum of (% customers * days paid)

= 30%*10 +70%*40

= 31

b: Average receivables= Days sales outstanding* sales per day

= 31* (1500000/365)

= 127397.26

c: days sales outstanding will become = 30%*10+ 70%*35

= 27.5

Average receivables will become = 27.5*(1500000/365)=

113013.70