16.5 Milwaukee Surgical Supplies, Inc., sells on terms of 3/10, net 30. Gross
sales for the year are $1,200,000 and the collections department estimates
that 30 percent of the customers pay on the tenth day and take discounts, 40
percent pay on the thirtieth day, and the remaining 30 percent pay, on
average, 40 days after the purchase. (Assume 360 days per year.)
A .What is the firm’s average collection period
b. What is the firm’s current receivables balance
c. What would be the firm’s new receivables balance if Milwaukee Surgical
toughened up on its collection policy, with the result that all nondiscount
customers paid on the 30th day
d. Suppose that the firm’s cost of carrying receivables was 8 percent
annually. How much would the toughened credit policy save the firm in
annual receivables carrying expense? (Assume that the entire amount of
receivables had to be financed).
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