Question

ALei Industries has credit sales of $ 153 million a year. ​ ALei's management reviewed its credit policy and decided that it wants to maintain an average collection period of 45 days.

a.  What is the maximum level of accounts receivable that ALei can carry and have a 45​-day average collection​ period?

b.  If​ ALei's current accounts receivable collection period is 55 ​days, how much would it have to reduce its level of accounts receivable in order to achieve its goal of 45 ​days?

a.  What is the maximum level of accounts receivable that ALei can carry and have a 45​-day average collection​ period?

The maximum level of accounts receivable will be ​$ nothing million.  ​(Round to one decimal​ place.)

Answer 1

a) Credit Sales per day = $153 million/365 = $419178.08

Accounts receivable = $419178.08*45 = $18863013.7 which is the maximum level of accounts receivable that ALei can carry and have a 45​-day average collection​ period

b) Current Accounts receivable = $153/365*55 = $23054794.5

Reduction in Accounts receivable required = 23054794.5-18863013.7 = $4191780.8 which is the reduction required in the level of accounts receivable in order to achieve its goal of 45 ​days