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?

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?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter21: Supply Chains And Working Capital Management

Section: Chapter Questions

Problem 6P

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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?

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