Roberts Manufacturing has never offered cash discounts to its customers before,
ID: 2653400 • Letter: R
Question
Roberts Manufacturing has never offered cash discounts to its customers before, but is considering it now. It currently sells on terms of net 50, and its days sales outstanding is 50 days. The new credit terms Roberts is considering are 1/15, net 30, Suppose that after instituting the new credit policy, Roberts sees that 40% of its customrs take advantage of the discount and pay of the 15th day, while the remaining 60% don't take the discount and pay on the 50th day on average. What is Robert's new days sales outstanding (DSO)?
a. 15 days
b. 30 days
c. 36 days
d. 50 days
Explanation / Answer
Average DSO = Weightage of customers paying on 15th day * 15 days + Weightage of customers paying on 50th day * 50 days
= 40% * 15 + 60% * 50
= 36 days
Therefore,option (c) 36 days
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