Attempts: 9. Days sales outstanding Mammoth Pictures Inc.\'s CFO has decided to
ID: 2792837 • Letter: A
Question
Attempts: 9. Days sales outstanding Mammoth Pictures Inc.'s CFO has decided to take a closer look at the company's credit policy. Mammoth Pictures Inc has annual sales of $402.8 million, and it currently has an accounts receivable balance of $47.6 million. The first step is Mammoth Pictures Inc.'s Dso? (Use 365 days as the length of a year in all calculations.) Keep the Highest:/3 AaAa the firm's credit policy is to determine its days sales outstanding (DS0). Based on this information, what O 34.5 days O 38.8 days O 43.1 days O 47.4 days The average DSO for Mammoth Pictures Inc.'s industry is 51.2 days. Assuming that its sales stayed the same, what would be Mammoth Pictures Inc.'s receivables balance if it maintained the industry average DSO? O $45,201,899 O $48,027,018 O $56,502,374 O $64,977,730 that the company has not done a very good job of enforcing its credit policy. The Mammoth Pictures Inc.'s CFO thinks CFO believes that if the company were to better enforce its credit policy, it would reduce its DSO to 30 days; however, this wi cause Mammoth Pictures Inc. to lose 5% of its sales revenue. Determine what Mammoth Pictures Inc.'s expected accounts receivables balance would be if it decides to tighten its credit policy O $31,451,520 O $37,741,824 O $36,169,248 $33,024,096Explanation / Answer
Answer to Part 1.
Days Sales Outstanding = Accounts Receivable / Net Credit Sales * 365
Days Sales Outstanding = 47.6/ 402.8 * 365
Days Sales Outstanding = 43.1 days
Answer to Part 2.
Days Sales Outstanding = Accounts Receivable / Net Credit Sales * 365
Days Sales Outstanding = 51.2 days
Net Credit Sales = $402.80 Million or $402,800,000
51.2 = Accounts Receivable / 402,800,000 * 365
Accounts Receivable = 51.2 * 402,800,000/ 365
Accounts Receivable = $56,502,356
Option 3 i.e. $56,502,374 is Correct.
The difference between the resulted answer and option is due to rounding off.
Answer to Part 3.
Days Sales Outstanding =30 days
Expected Sales = $402.80 – ($402.80 * 5%)
Expected Sales = $402.80 - $20.14
Expected Sales = $382.66 Million
Days Sales Outstanding = Accounts Receivable / Net Credit Sales * 365
30 = Expected Accounts Receivable / 382.66 * 365
Expected Accounts Receivable = 30 * 382.66 / 365
Expected Accounts Receivable = $31,451,506
Option 1st i.e. $31,451,520 is correct.
The difference between the resulted answer and option is due to rounding off.
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