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    McDowell Industries: days sales outstanding, receivables

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    McDowell Industries sells on terms of 3/10, net 30. Total sales for the year are $912,500. Forty percent of the customers pay on the 10th day and take discounts; the other 60% pay on average of 40 days after their purchases.
    a) What is the days sales outstanding?
    b) What is the average amount of receivables?
    c) What would happen to average receivables if McDowell toughed up on its collection policy with the result that all nondiscount customers paid on the 30th day?

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    Solution Preview

    a) What is the days sales outstanding?

    The days sales outstanding (DSO) would be a weighted average. 40% pay on Day 10 and 60% pay on Day 40
    DSO = ...

    Solution Summary

    The solution explains how to calculate the days sales outstanding and the average receivables