Delta Distributors has an investment in trade receivables of £2,750,000.Daily credit sales are £118,280.If 30% of Delta's credit customers receive a discount by paying within 10 days and the
Remainder of Delta's customers pay in 40 days, what is the net period that Delta maintains?

Question

Quizplus · Accepted Answer

To find the net period that Delta maintains, we need to calculate the weighted average of the credit periods for the two groups of customers.

The first group, which receives a discount for paying within 10 days, has a credit period of 10 days. The second group, which pays in 40 days, has a credit period of 40 days.

The proportion of credit sales made to the first group is calculated as follows: 
(0.3)(£118,280) = £35,484

The proportion of credit sales made to the second group is: 
(1-0.3)(£118,280) = £82,796

The weighted average credit period is then: 
(10 days)(£35,484) + (40 days)(£82,796) / (£118,280) 
= 31 days

Therefore, the best choice is B, with a net period of 31 days.

Delta Distributors Has an Investment in Trade Receivables of £2,750,000