Comprehensive Problem 2 – B Term

BUSI 320 – Comprehensive Problem 2

Answer: 

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a. Compute the accounts receivable balance before and after the change in the cash discount policy. Use the net sales (total sales minus cash discounts) to determine the average daily sales. Accounts receivable = Average collection period x average daily sales Before: Average Collection Period .40 x 10 = 4 .60 x 40 = 24 Total: 28 days 300,000 – (.01)(.40)(300,000)/360 = $830.00 830.00 x 28 = $23,240 After: Average Collection Period .50 x 10 = 5 .60 x 60 = 36 Total = 41 800,000-(.05)(.60)(800,000)/360 = 88,377.78 b. Determine the EOQ before and after the change in the cash discount policy. Translate this into average inventory (in units and dollars) before and after the change in the cash discount policy. EOQ Before √ 2×12,000 x 250/2.00 = 1,732.05 After √ 2×24,000 x 250/2.00 = 2,449.49 Average Inventory Before – 1,732.05/2 = 866.03 x $11.50 = $9,959.29 After 2,449.49/2 = 1224.75 x $11.50 = $14,084.57…………………………………