Mahony Company sells on terms of net 30 Annual credit sales

Mahony Company sells on terms of \"net 30.\" Annual credit sales are $56.25 million, and its accounts receivable average 10 days overdue tment in receivables b. Suppose that annual credit sales decline by 15% and customers delay their payments to an average of 25 days past due. Determine the company\'s new level of receivables investment. Formula: Investment in receivables Average daily sales x Average collection period

Solution

Investments receivable:
average daiy sales = 56.25/365 = $0.15m sales

receivable turnover ratio = annual credit sales /average accounts receivable = 56.25/10=5.625 times

average collection period is = 365/5.625 =64.88 days

so investments receivables = 0.15*(64.88) =9.733

B. Annual credit sales declined by 15%

so here sales = 56.25*(15/100)

= 8.43 so declined sales (56.25-8.43) = 47.81m

avg daily sales = 47.81/365 = $0.13m

receivble turn over ration is = 47.81/25 =1.91

average collection period is =365/1.91=191days

so here new level of receivbles is = (0.13)*(191)= 24.83