Data on Shick Inc. for 2013 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)
53)09
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 receivables using the formula: Receivables = (DSO/365) * Sales. Then, calculate the target receivables using the benchmark DSO. The decline is the difference between current and target receivables. Current receivables = (53/365) * 110,000 = $15,972.60. Target receivables = (20/365) * 110,000 = $6,027.40. Decline = $15,972.60 - $6,027.40 = $9,945.20, which is closest to option C, $9,973.