Essence of Skunk Fragrances, Ltd., sells 6,700 units of its perfume collection e

Question

Essence of Skunk Fragrances, Ltd., sells 6,700 units of its perfume collection each year at a price per unit of $830. All sales are on credit with terms of 2/15, net 90. The discount is taken by 45 percent of the customers.

Calculate the average collection period. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

What is the receivables turnover? (Use 365 days a year. Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)

What is the amount of the company’s average receivables? (Use 365 days a year. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Essence of Skunk Fragrances, Ltd., sells 6,700 units of its perfume collection each year at a price per unit of $830. All sales are on credit with terms of 2/15, net 90. The discount is taken by 45 percent of the customers.

Explanation / Answer

Total Credit Sales = 6,700 units x $830 = $ 5,561,000

‘% of Customers not receiving Discounts =100% - 45%=55%

Average Collection Period = (45% x 15) + (55% x 90)

                                                =6.75+49.5

                                                =56.25 days

Receivable Turnover = 365/56.25

                                = 6.49 times

Average Receivables = $5,561,000/6.49

                                    = $ 857,003.42

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