McDowell Industries sells on terms of 3/10, net 30. Total sales for the year are $912,500; 40%

Question:

McDowell Industries sells on terms of 3/10, net 30. Total sales for the year are $912,500; 40% of the customers pay on the 10th day and take discounts, while the other 60% pay, on average, 40 days after their purchases.

a. What is the days’ sales outstanding?

b. What is the average amount of receivables?

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

d. What is the percentage cost of trade credit to customers who do not take the discount and pay in 40 days?

e. What would happen to McDowell’s accounts receivable if it toughened up on its collection policy with the result that all nondiscount customers paid on the 30th day?

Accounts Receivable
Accounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that...