Question

Leyton Lumber Company has sales of $8 million per year, all on credit terms calling for payment within 30 days, and its accounts receivable are $1.2 million. Assume 365 days in year for your calculations.

What is Leyton's DSO? Round your answer to two decimal places.

Answer 1

Leyton Lumber Company's Days Sales Outstanding (DSO) is calculated as 54.75 days, indicating the average number of days it takes the company to collect payment after a sale has been made.

Step-by-step explanation:

The Days Sales Outstanding (DSO) is a measure used by a company to calculate the average number of days it takes to collect payment after a sale has been made. To calculate the DSO for Leyton Lumber Company, we can use the following formula:

DSO = (Accounts Receivable / Total Credit Sales) × Number of Days in Period

In this case, the company’s accounts receivable are $1.2 million and the annual credit sales are $8 million. Given that there are 365 days in a year, the calculation would be:

DSO = ($1.2 million / $8 million) × 365 days

DSO = (0.15) × 365 days

DSO = 54.75 days

After rounding to two decimal places, Leyton Lumber Company’s DSO is 54.75 days.