CSI Lumber Company has sales of $10 million per year. All sales are on credit, calling for payment within 30 days, but not all their customers pay on time. Accounts receivable are too high; they are $2 million. The receivables reflect money the firm can't use yet. The firm has to borrow $2 million to finance the receivables. How much is the firm's DSO?

CSI Lumber Company has sales of $10 million per year. All sales are on credit, calling for payment within 30 days, but not all their customers pay on time. Accounts receivable are too high; they are $2 million. The receivables reflect money the firm can't use yet. The firm has to borrow $2 million to finance the receivables. How much is the firm's DSO?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 33P

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Concept explainers

Cost-Volume-Profit Analysis

Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.

Marginal Costing

Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.

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