Question

Snider Industries sells on terms of 3/10, net 35. Total sales for the year are $910,000. Thirty percent of customers pay on the 10th day and take discounts; the other 70% pay, on average, 40 days after their purchases. Assume 365 days in year for your calculations.

a. What is the days sales outstanding? Round your answer to one decimal place.

b. What is the average amount of receivables? Round your answer to the nearest dollar. Do not round intermediate calculations.

c. What would happen to average receivables if Snider toughened its collection policy with the result that all nondiscount customers paid on the 35th day? Round your answer to the nearest dollar. Do not round intermediate calculations.

Answer 1

a. The days sales outstanding is 42 days. b. The average amount of receivables is approximately $105,205. c. If Snider toughens its collection policy, the average receivables would decrease to around $96,243.

Step-by-step explanation:

a. Days Sales Outstanding:

To calculate the Days Sales Outstanding (DSO), we need to find the average collection period. The average collection period is the weighted average of the payment terms of the customers.

Based on the given information, 30% of customers pay on the 10th day and take discounts, while the other 70% pay, on average, 40 days after their purchases.

Using the formula for weighted average:

DSO = (0.3 * 10) + (0.7 * 40) = 14 + 28 = 42 days

b. Average Receivables:

To calculate the average receivables, we can use the formula:

Average Receivables = Total Sales * Average Collection Period / 365

Substituting the given values:

Average Receivables = $910,000 * 42 / 365 ≈ $105,205

c. Impact of Toughened Collection Policy:

If all non-discount customers paid on the 35th day, the collection period for them would increase to 35 days.

Using the formula for weighted average:

DSO = (0.3 * 10) + (0.7 * 35) = 14 + 24.5 = 38.5 days

Using the new DSO value, we can calculate the new average receivables:

Average Receivables = $910,000 * 38.5 / 365 ≈ $96,243

Answer 2

The answer and procedures of the exercise are attached in the following archives.

Explanation

You will find the procedures, formulas or necessary explanations in the archive attached below. If you have any question ask and I will aclare your doubts kindly.