Milwaukee Surgical Supplies, Inc., has gross sales for the year are $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.)

a. What is the firms average collection period?

b. What is the firms current receivables balance?

c. What would the firms new receivables balance be if Milwaukee Surgical toughened up on its collection policy, with the result that 70 percent of customers that did not pay by the tenth day paid on day 30?

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.)