## Related questions with answers

McEwan Industries sells on terms of 3/10, net 30. Total sales for the year are $1,921,000; 40% of the customers pay on the 10th day and take discounts, while the other 60% pay, on average, 70 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 70 days? e. What would happen to McEwan’s accounts receivable if it toughened up on its collection policy with the result that all nondiscount customers paid on the 30th day?

Solution

Verified$\text{\textcolor{#c34632}{a}}$. In order to find the day sales outstanding (DSO) we need to understand what percentage of customers took advantage of the discounts and which customers waited to pay. The problem says 40% of customers pay on the 10th day, while 60% of customers pay 70 days after their purchase. To find the DSO we can set up the equation as follows-

$\textbf{DSO}$=$40\%\times10+60\%\times70$

$\textbf{DSO}$=$4+42$=$\fbox{46 Days}$

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