Colorado Medical Supply Corporation (CMSC) sells on term 3/10, net 30. Gross sales for the year...

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Colorado Medical Supply Corporation (CMSC) sells on term 3/10, net 30. Gross sales for the year are $12,000,000, and the collections department estimates that 30 percent of the customers pay on the tenth day and take discounts. 30 percent pay on the thirtieth day, and the remaining 40 percent pay, on average, 60 days after the purchase. Assume 360 days per year. a. What is the firm's average collection period. b. What is the firm's current receivables balance? c. What would be the firm's new receivables balance if CMSC toughened up on its collection policy, with the result that all non-discount customers pay on the thirtieth day? d. Suppose that CMSC's cost of carrying receivables was 10 percent annually. How much would the toughened credit policy save the firm in annual receivables carrying expense. Assume that the entire amount of receivables had to be financed. Colorado Medical Supply Corporation (CMSC) sells on term 3/10, net 30. Gross sales for the year are $12,000,000, and the collections department estimates that 30 percent of the customers pay on the tenth day and take discounts. 30 percent pay on the thirtieth day, and the remaining 40 percent pay, on average, 60 days after the purchase. Assume 360 days per year. a. What is the firm's average collection period. b. What is the firm's current receivables balance? c. What would be the firm's new receivables balance if CMSC toughened up on its collection policy, with the result that all non-discount customers pay on the thirtieth day? d. Suppose that CMSC's cost of carrying receivables was 10 percent annually. How much would the toughened credit policy save the firm in annual receivables carrying expense. Assume that the entire amount of receivables had to be financed.

Answer rating: 100% (QA)

a To calculate the firms average collection period we need to determine the weighted average number of days it takes for customers to pay Well use the following information 30 of customers pay on the ... View the full answer