7.4 Milwaukee Surgical Supplies Inc. has gross sales for the year of $1,200,000. The collections department estimates that 30 percent of the customers pay on the tenth day, 40 percent pay on the thirtieth day, and the remaining 30 percent pay, on average, on the fortieth day after the purchase. (Assume 360 days per year.)What is the firm’s average collection period?What is the firm’s current receivables balance?What would the firm’s new receivables balance be if Milwaukee Surgical toughened up on its collection policy, with the result that the 70 percent of customersthat did not pay by the tenth day paid on day 30?Suppose that the firm’s cost of carrying receivables was 8 percent annually.How much would the toughened credit policy save the firm in annual receivables carrying expense? (Assume that the entire amount of receivables has to be financed.)

Gross Sales = $1,200,000 Customers paying on 10th day = 30% Customers paying on 30th day = 40%…

Answered: Milwaukee Surgical Supplies Inc. has…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

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7.4 Milwaukee Surgical Supplies Inc. has gross sales for the year of $1,200,000. The collections department estimates that 30 percent of the customers pay on the tenth day, 40 percent pay on the thirtieth day, and the remaining 30 percent pay, on average, on the fortieth day after the purchase. (Assume 360 days per year.)

What is the firm’s average collection period?
What is the firm’s current receivables balance?
What would the firm’s new receivables balance be if Milwaukee Surgical toughened up on its collection policy, with the result that the 70 percent of customersthat did not pay by the tenth day paid on day 30?
Suppose that the firm’s cost of carrying receivables was 8 percent annually.

How much would the toughened credit policy save the firm in annual receivables carrying expense? (Assume that the entire amount of receivables has to be financed.)

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