accounting-Milwaukee Surgical Supplies, Inc. Sells on terms

QUESTION

Problem 16.5 from page 602, Chapter 16
Milwaukee Surgical Supplies, Inc. Sells on terms of 3/10,
net 30. Gross sales for the year are $1,200,000, and the collections department
estimates that 30% of the customers pay on the tenth day and take discounts, 40
percent pay on the 30th day, and the remaining 30% pay, on average, 40 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
balances if Milwaukee Surgical toughened up on its collection policy, with the
result that all nondiscount customers paid on the 30th day?
D.
Suppose that the firm’s cost of carrying
receivables was 8% 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:

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