Question
are my answers below correct? 1511. Axis Wells and Excavation (AWE) currently generates $72,000 in annual credit sales. AWE sells on terms of net 50,
are my answers below correct?
1511.
Axis Wells and Excavation (AWE) currently generates $72,000 in annual credit sales. AWE sells on terms of net 50, and its accounts receivable balance averages $12,000. AWE is considering a new credit policy with terms of net 25. Under the new policy, sales will decrease to $68,000, and accounts receivable will average $13,600. Compute the days sales outstanding (DSO) under the existing policy and the proposed policy.
Existing is $72,000 in sales; net 50, and AR of $12,000 average.
AR turns:Sales/average AR
$72,000/$12,000 = 6 times
DSO = 360/6 = 60 days
360/10 days = 36 days
Proposed/New net 25 and sales decrease to $68,000 and AR average of $13,600
$68,000/$13,600 = 5 times
DSO = 360/5 = 72 days
360/47 = 7.65 days
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