Milwaukee Surgical Supplies, Inc., sells on terms of 3/10, net 30.Gross sales for the year are $1,200,000 and the collections department estimates that 30 percent of the customers pay on the tenth day and take discounts, 40 percent pay on the thirtieth day, and the remaining 30 percent pay, on average, 40 days after the purchase. (Assume 360days per year.)a. What is the firms average collection period?b. What is the firms current receivables balance?c. What would be the firms new receivables balance if Milwaukee Surgical toughened up on its collection policy, with the result that all non discount customers paid on the 30th day?d. Suppose that the firms 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 had to be financed.)