Question

4. Essence of Skunk Fragrances, Ltd., sells 6,200 units of its perfume collection each year at a price per unit of $392. All sales are on credit with terms of 1/10, 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

Days sales outstanding (DSO)

Days sales outstanding (DSO) = [Number of days in discount period x percent of the customers pay] + [Non-discount period x percent of the customers pay]

= [10 Days x 35%] + [50 Days x 65%]

= 3.50 Days + 32.50 Days

= 36.00 Days

Average amount of receivables

Sales per day = Total Sales / Number of days in a year

= [6,200 units x $392 per unit] / 365 Days

= $2,430,400 / 365 Days

= $6,658.63 per day

Therefore, the Average amount of receivables = Sales per day x Days sales outstanding (DSO)

= $6,658.63 per day x 36.00 Days

= $239,711

“Therefore, the Average amount of receivables will be $239,711”