Question

Snider Industries sells on terms of 3/10, net 45. Total sales for the year are $1,800,000. 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.

Answer 1

(a)- Days sales outstanding (DSO)

Days sales outstanding (DSO) = [Number of days in discount period x percent of the customers pay] + [Non-discount period x percent of the customers pay]

= [10 Days x 30%] + [50 Days x 70%]

= 3.0 Days + 35.0 Days

= 38.0 Days

(b)- Average amount of receivables

Sales per day = $4,931.51 per day [$1,800,000 / 365 Days]

Average amount of receivables = Sales per day x Days sales outstanding (DSO)

= $4,931.51 per day x 38.0 Days

= $187,397