The Boat House offers credit terms of 2/15, net 45 to all of its customers. Historically, 86 percent of its customers take advantage of the discount. What is the firm's average collection period?

Question

Quizplus · Accepted Answer

First, we need to calculate the discount period: 
2% discount for paying within 15 days 
100% - 86% = 14% of customers do not take advantage of the discount 
So, the non-discount period is 45 days

The weighted average collection period can be calculated as:

(86% × 15 days) + (14% × 45 days) = 12.9 + 6.3 = 19.2 days

Therefore, the average collection period of The Boat House is 19.2 days. The correct choice is C.

The Boat House Offers Credit Terms of 2/15, Net 45