Purchase Solution

Firm's Average Collection Period & Current Receivable Balanace

Not what you're looking for?

Ask Custom Question

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% pay on the thirtieth (30th) day, and remaining 30% pay, on average, 40 days after the purchase. (Assume 360 days /year.)

1. Calculate the firm's average collection period.

2. Calculate the firm's current receivables balance.

3. Calculate the firm's new receivables balance if Milwaukee Surgical toughened up on its collection policy, with the result that all non-discount customers paid on the 30th day.

4. Assuming the cost to the firm to carry receivables is 8% per annum, calculate the annual savings resulting from the toughened credit policy. (Assume the entire amount of receivables had to be financed.)

Purchase this Solution
Solution Summary

This post shows how to calculate the firm's average collection period and the firm's current receivables balance.and the annual savings in explained calculations totaling 218 words.

Solution Preview

1. Calculate the firm's average collection period.
Take the weighted sum of days sales is outstanding. 30% customer pay on 10th day, 40% on 30th day and 30% on 40th days
=(10*30%+30*40%+40*30%)
=27 days

2. Calculate the firm's current receivables balance.
Average collection period = 27 days (calculated in part a)
Sales = 1200000 (given in question)

Current ...

Purchase this Solution
Free BrainMass Quizzes
Transformational Leadership

This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.

Situational Leadership

This quiz will help you better understand Situational Leadership and its theories.

Income Streams

In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.

Production and cost theory

Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.

Academic Reading and Writing: Critical Thinking

Importance of Critical Thinking

View More Free Quizzes
Related BrainMass Solutions

  • Brenda Smith, Inc. Accounts Receivable

    If Smith's accounts receivable are $562,500, what is its average collection period? b. If Smith reduces its average collection period to 20 days, what will be its new level of accounts receivable? c.

  • Megaframe Computer Company - Balance Sheet

    return on equity, the firm's average collection period, the firm's receivable turnover, quick ratio, current ratio, total asset turnover, debt to asset ratio, and times interest earned.

  • Average collection period and Current ratio

    Inventory is sold at the firm's normal 35% markup over cost. Here is some background info for you on avg collection period and current ratio: Avg collection period: The average time period for which receivables are outstanding.

  • Key Data Regarding Finance Questions

    The firm's current average collection period is 60 days, sales are 40,000 units, selling price is $45 per unit, and variable cost per unit is $36.

  • Total Asset Turnover Discussion

    Average collection period = 365/Credit sales * Accounts receivable  365/2,700,000 * 100,000  13.52 days Average collection period can also be found as: Average daily sales = Annual sales/365 = $2,700,000/365  $7,397.26 Average collection period

  • Cash Conversion Cycles for Edison Inc.

    Current company's cash conversion cycle Cash conversion cycle = Inventory conversion period + Receivables collection period - Payables deferral period Cash conversion cycle = 67 + 60 - 35 = 92 days Inventory conversion period = Inventory/Sales per

  • Ratios

    $ 72,000 The firm's average collection period is? Airline Company's current ratio? Times interest earned for the company is? The firm's debt to asset ratio is?

  • perform a financial analysis including liquidity ratios

    It is the accounts receivable balance divided by the average daily credit sales, calculated as follows: Average Collection Period = Accounts Receivable Annual Credit Sales / 365 The collection period also can be written as: Average

  • Calculate the ratio's for Company A.

    This number is known as the collection period. It is the accounts receivable balance divided by the average daily credit sales, calculated as follows: 5.

View More Related Solutions