Mace Auto Parts Company sells to retail auto supply stores on credit terms of "net 60." Annual credit sales are $300 million (spread evenly throughout the year) and its accounts average 28 days overdue. The firm's variable cost ratio is 0.75 (i.e., variable costs are 75% of sales). When converting from annual to daily data or vice versa, assume there are 365 days per year. Determine Mace's average collection period.

Question

Quizplus · Accepted Answer

The average collection period is the sum of the credit terms (60 days) and the average days overdue (28 days), which equals 88 days.

Mace Auto Parts Company Sells to Retail Auto Supply Stores