Size of Accounts Receivable. Essence of Skunk Fragrances, Ltd., sells 7,400 unit
ID: 2798036 • Letter: S
Question
Size of Accounts Receivable. Essence of Skunk Fragrances, Ltd., sells 7,400 units of its perfume collection each year at a price per unit of $235. All sales are on credit with terms of 1/10, net 30. The discount is taken by 40 percent of the customers. What is the amount of the company's 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 3/10, net 30 to preserve its market share. How will this change in policy affect accounts receivable?
Explanation / Answer
Total credit sales of skunk fragrances = $235 × 7400= $1,739,000
40% customers avail the given discount.
Therefore,
Value of discounted sales = $235 × (1-0.01) × 7400 × 0.40= 688,644
Therefore, remaining sales will account for $235 × 7400 × 0.60= 1,043,400
Total credit sales= $1,732,044
If discount terms are changed to 3/10 net 30, value of discounted sales will be
$235×(1-0.03)×7400×0.40= $674,732
Remaining sales will be $235×7400×0.60= $1,043,400
Total credit sales= $1,718,132
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