Question

Receivables Investment

Snider Industries sells on terms of 3/10, net 45. Total sales for the year are $1,370,000. Thirty percent of customers pay on the 10th day and take discounts; the other 70% pay, on average, 50 days after their purchases. Assume 365 days in year for your calculations.

1. What is the days sales outstanding? Round your answer to one decimal place.
   days
   
2. What is the average amount of receivables? Round your answer to the nearest dollar. Do not round intermediate calculations.
   $  
   
3. What would happen to average receivables if Snider toughened its collection policy with the result that all nondiscount customers paid on the 45th day? Round your answer to the nearest dollar. Do not round intermediate calculations.

Answer 1

Answer a.

30% of customers pay on the 10th day and remaining 70% of customers pay after 50 days after their purchases.

Days Sales Outstanding = 30% * 10 + 70% * 50
Days Sales Outstanding = 38 days

Answer b.

Days Sales Outstanding = 365 * Accounts Receivable / Total Sales
38 = 365 * Accounts Receivable / $1,370,000
Accounts Receivable = $142,630.14

Answer c.

30% of customers pay on the 10th day and remaining 70% of customers pay after 45 days after their purchases.

Days Sales Outstanding = 30% * 10 + 70% * 45
Days Sales Outstanding = 34.50 days

Days Sales Outstanding = 365 * Accounts Receivable / Total Sales
34.50 = 365 * Accounts Receivable / $1,370,000
Accounts Receivable = $129,493.15

Decrease in Accounts Receivable = $142,630.14 - $129,493.15
Decrease in Accounts Receivable = $13,136.99