Grunewald Industries sells on terms of 3/10, net 40. Gross sales last year were
ID: 2732711 • Letter: G
Question
Grunewald Industries sells on terms of 3/10, net 40. Gross sales last year were $4,398,000, and accounts receivable averaged $440,500. Half of Grunewald's customers paid on the 10th day and took discounts. What are the nominal and effective costs of trade credit to Grunewald's nondiscount customers? (Hint: Calculate sales/day based on a 365-day year; then get average receivables of discount customers; then find the DSO for the nondiscount customers.) Do not round intermediate calculations. Round your answers to two decimal places. Nominal cost % Effective cost %
Explanation / Answer
Sales per day $12050
Discount sales 0.5($12050) = $6025
A/R attributable to discount customers = $6025(10) = $60250
A/R attributable to non discount customers
Total A/R $440500
Discount customers A/R $60250
Non discount customers A/R $380250
Alternatively,
DSO = $440500/$12050
= 36.5days
36.5= 0.5(10) + 0.5(DSO non discount customers)
DSO non discount customers = 31.5/0.5 = 63 days
Thus, although non discount customers are supposed to pay with in 40 days, they are actually paying on avg 63days
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