Fandango Company's credit terms allow its customers to pay invoices in 30 days. Practice has not followed policy and the collection period is at 45 days. If Fandango's receivables are $164,565 and the company can earn 12% on capital invested, what is the opportunity cost it is experiencing by not adhering to their collection policy?

Question

Quizplus · Accepted Answer

The opportunity cost is calculated by finding the difference in collection periods (45 days - 30 days = 15 days), then calculating the interest lost on the receivables for those 15 days. The formula is: Opportunity Cost = (Receivables * Interest Rate * Days Late) / 365. Plugging in the values: ($164,565 * 0.12 * 15) / 365 = $6,582.60.

Fandango Company's Credit Terms Allow Its Customers to Pay Invoices