Essence of Skunk Fragrances, Ltd., sells 5,600 units of its perfume collection e

Question

Essence of Skunk Fragrances, Ltd., sells 5,600 units of its perfume collection each year at a price per unit of $425. All sales are on credit with terms of 1/10, net 40. The discount is taken by 60 percent of the customers. What is the amount of the companys accounts receivable? In reaction to sales by its main competitor, Sewage Spray, Essence of Skunk is considering a change in its credit policy to terms of 2/10, net 30 to preserve its market share. How will this change in policy affect accounts receivable?

Explanation / Answer

60% percent units are sold for discount which is 0.6*5600=3360 total amount of these unit =3360*(425-0.01*425)=$1,413,720 rest unit=5600-3360=2240 total amount of these unit=$425*2240=952,000 total amount=$952,000+1,413,720=$2365720 there is chance that people will use more discount % and thus more no of units will b bought and thus net profit will increase

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