Consider the case of the Henderson Company.
The financial managers at the Henderson Company have been monitoring the company’s receivables and have compiled the following information:

• All sales are on credit. Henderson’s current terms are 2/10 net 30.
• 10% of Henderson’s customers take advantage of the discount.
• Payments from its remaining customers are received, on average, in 53 days.
• Estimated credit sales are $170.000 million annually.
• Variable costs are 82% of gross sales.
• Credit evaluation and collection costs are 10% of gross sales.
• There are no bad debts to consider in this analysis.

Using the preceding information, fill in the blanks in the following analysis.
Credit Analysis:
I. General Credit Policy Information
Credit terms 2/10 net 30
Days sales outstanding (DSO) for all customers ?
DSO for customers who take the discount (10%) 10 days
DSO for customers who forgo the discount (90%) 53 days
II. Annual Credit Sales and Costs ($ millions)
Gross sales $170.000
Net sales ?
Amount paid by discount customers
Amount paid by non discounted customers $153.000
Variable operating costs (82% of gross sales) $139.40
Bad debts $0.0
Credit evaluation and collection costs (10% of gross sales) $17.00

I) Days sales outstanding (DSO) for all customers?      48.7days

= (53*0.9)+(10*0.1) = 48.7 days

II) Net sales?                                                                  $166.600

The Net sales = Gross sales - sales allowance  

The discount amount due for the 10% discount customers = 2% of the 10% of 170 mn ==>  0.02 * 0.1 * 170 ===> 0.34 mn

∴ The Net sales = 17 - 0.34 mn = 16.66 mn

   Amount paid by discount customers?                     $13.600

Explanation:

I. General Credit Policy Information

  Credit stamps                                                               2/10 Net 30

  Days sales outstanding (DSO) for all customers    48.7days

  DSO for customers who take the discount (10%)      10days

  DSO for customers who forgo the discount (90%)    53days

II. Annual Credit Sales and Costs ($ millions)

  Gross sales                                                                 $170.000

  Net sales?                                                                   $166.600

  Amount paid by discount customers                      $13.600

  Amount paid by non discounted customers           $153.000

 Variable operating costs (82% of gross sales)         $139.40

 Bad debts                                                                    $0.0

 Credit evaluation & collection costs (10% of gross sales) $17.00

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