Problem:
Snider Industries sells on term of 2/10, net 45. Total sales for the year are $1,500,000. Thirty percent of customers pay on the 10th day and take discounts: the other 70% pay, on average, 50 days after their purchases.
Required:
Question 1: What is the days sales outstanding?
Question 2: What is the average amount of receivables?
Question 3: What would happen to average receivables if Snider toughened its collection policy with the result that all non-discount customers paid on the 45th day.
Note: Please provide reasons to support your answer.