Data on Shick Inc. for 2008 are shown below, along with the days sales outstanding of the firms against which it benchmarks. The firm's new CFO believes that the company could reduce its receivables enough to reduce its DSO to the benchmarks' average. If this were done, by how much would receivables decline? Use a 365-day year. Sales $110,000
Accounts receivable $16,000
Days sales outstanding (DSO)Benchmarks' days sales outstanding (DSO) 20.00
A) $8,078
B) $8,975
C) $9,973
D) $10,970
E) $12,067

Question

Quizplus · Accepted Answer

To find the decline in receivables, calculate the current DSO and compare it to the benchmark. Current DSO = (Accounts Receivable / Sales) * 365 = (16,000 / 110,000) * 365 = 53.09 days. The benchmark DSO is 20 days. The target receivables = (Sales / 365) * Benchmark DSO = (110,000 / 365) * 20 = 6,027. Decline in receivables = Current Receivables - Target Receivables = 16,000 - 6,027 = 9,973.