Receivables Investment McEwan Industries sells on terms of 3/10, net 30. Total sales for the year are $1,921,000; 40% of the customers pay on the 10th day and take discounts, while the other 60% pay, on average, 70 days after their purchases. What is the days sales outstanding?.40 * 10 +.60 * 70 4 + 42 days days sales outstanding = 46 days What is the average amount of receivables? 1,921,00046/365 $242,098.63 What is the percentage cost of trade credit to customers who take the discount?.03365 /.97x20 56.44% What is the percentage cost of trade credit to customers who do not take the discount and pay in 70 days?.03*365 /.97x60 18.8% What would happen to McEwan's accounts receivable if it toughened up on its collection policy with the result that all nondiscount customers paid on the 30th day?

Question

Stein

Business

20 August, 09:57

Receivables Investment McEwan Industries sells on terms of 3/10, net 30. Total sales for the year are $1,921,000; 40% of the customers pay on the 10th day and take discounts, while the other 60% pay, on average, 70 days after their purchases. What is the days sales outstanding?.40 * 10 +.60 * 70 4 + 42 days days sales outstanding = 46 days What is the average amount of receivables? 1,921,00046/365 $242,098.63 What is the percentage cost of trade credit to customers who take the discount?.03365 /.97x20 56.44% What is the percentage cost of trade credit to customers who do not take the discount and pay in 70 days?.03*365 /.97x60 18.8% What would happen to McEwan's accounts receivable if it toughened up on its collection policy with the result that all nondiscount customers paid on the 30th day?

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Houston Holland · Answer 1

Days Sales outstanding is the average number of days that a business take to collect the cash after making sales on account.

Days Sales outstanding = (40% x 10 days) + (60% x 70 days) = (0.4 x 10) + (60% x 70) = 46 Days

Receivable per day = 1,921,000/365

Average Receivables = $5,263.01 x 46 = $242,098.63

Trade credit to customer who take discount = (3%x365) / (97%x20) = 56.44%

Trade credit to customer who don't take discount = (3%x365) / (97%x60) = 18.8%

As the percentage of customers who take discount is higher than the customer who don't. If McEwan's tightened its credit the customers who take discount can reduce the receivables.