Fragrances, Ltd., sells 7,500 units of its perfume collection each year at a price per unit

of Rs.955. All sales are on credit with terms of 2/10, net 45. The discount is taken by 40 percent

of the customers. What is the total amount of the company's accounts receivable? In reaction to

sales by its main competitor, Relief Spray, Superior Fragrances, Ltd is considering a change in

its credit policy to terms of 4/10, net 30 to preserve its market share. How will this change in

policy affect accounts receivable?

HINT: For the calculation of average collection period , you can apply this formula, the average

collection period is the percentage of accounts taking the discount times the discount period,

plus the percentage of accounts not taking the discount times the days' until full payment is

required.(7)

You are required to calculate the following to reach the account receivable

a) Average collection period

b) Receivable turnover

c) Average receivable

d) What will happen if Superior Fragrances Ltd change its policy and increase its discount

by looking its competitor? What impact it create on a,b and c.

Page 3 of 3

e) What are some of the factors that determine the length of the credit period? Provide

answer in bullet points.