Question

Essence of Skunk Fragrances, Ltd., sells 5,400 units of its perfume collection each year at a price per unit of $384. All sales are on credit with terms of 2/10, net 50. The discount is taken by 35 percent of the customers.

What is the amount of the company’s accounts receivable? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

Average receivables ____ $ ?

Answer 1

Total Sales = units sold * price per unit

= 5400*$384 = $2,073,600

Average collection period = percentage of customers availing discount*the discount rate + percentage of customers not availing discount*total number of days within which the payment has to be made

= 35%*10 + 65%*50

=3.5+32.5 = 36 days

Average collection period = 36 days

Receivables turnover ratio = 365/average collection period

= 365/36

=10.14

Accounts receivables = Total sales/receivables turnover ratio

= $ 2,073,600/10.14 =$204519.50