Solved – Howe Industries sells on terms of 2/10, net 40. Gross sales last year were $4.5 million, and accounts receivable averaged $437,500

Question

Howe Industries sells on terms of 2/10, net 40. Gross sales last year were $4.5 million, and accounts receivable averaged $437,500. Half of Howe’s customers paid on 10th day and took discounts. What is the cost of trade credit to Howe’s non-discount customers? (Hint: Calculate sales per day based on a 360-day year, get the average receivables of discount customers, and then find the DSO for the non-discount customers.)

Answer

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