Music City has an average collection period of 34.6 days and an average daily investment in receivables of $71,407. What are the annual credit sales given a 365-day year?
A) $668,407
B) $577,109
C) $753,282
D) $625,893
E) $767,123

Question

Quizplus · Accepted Answer

Annual credit sales can be calculated using the formula:

Annual credit sales = Average daily credit sales x Number of days in a year

We need to first calculate the average daily credit sales by dividing the total investment in receivables by the average collection period:

Average daily credit sales = ($71,407) / (34.6 days) = $2,063.39

Now we can calculate the annual credit sales:

Annual credit sales = ($2,063.39) x (365 days) = $753,282

Therefore, the answer is (C) $753,282.

Music City Has an Average Collection Period of 34