# Case 27 - Finance

1395 Words Jun 23rd, 2013 6 Pages
Case 27

1. For this question, ignore the forecasted receivables collection pattern in Exhibit 27.4. Using paper and pencil (do NOT use the template), calculate the projected ACP and average daily sales (ADS) under the following conditions:
30% of customers pay on the 10th day
50% of customers pay on the 30th day
20% of customers pay on the 60th day
800,000 units sold per year @ \$5 per unit = \$4,000,000/360
Remember, since there are no balance sheets or operating statements, you will have to MANUALLY calculate the ACP. Just look at the numbers: 30% pay after 10 days + 50% pay after 30 days + 20% pay after 60 days. What’s the average? Voila! Also, for consistency, use 360 days = one year

For the entire half year?
Answer: First 3 months- \$8,333, Half year- \$11,667

What is the implied average collection period for the end of March? For the end of June?

Answer: End of March- 42.2 days, End of June- 28.8 days

Does the ACP indicate that the firm’s customers have changed their payment behavior? Is the ACP a good management tool in this situation? If not, why not?

Answer: The average collection period is definitely a good indicator of future trends of payers. In this case, the ACP illustrates that the firm’s customers have changed their payment behavior in a positive way.

6. Given the data in this worksheet, what do the aging schedules tell you about customers’ payment patterns at the end of March and June? Explain.

Answer: Aging schedules definitely help a company keep track of which of its customers are paying on time, and are useful in figuring cash flow. In this case, it is apparent that the majority of accounts receivable by the end of March are less than 30 days old (80.8%). By the end of June, that percentage goes down to 63.7%. By the end of March, 19.2% of accounts receivable are between 30-60 days old, and by the end of June, there is 36.3%. 0% of accounts receivable get to be over 60 days old, which indicates payment.

7. Now, looking at the uncollected balances schedules as of the end of March and June, do these schedules properly measure customers’ payment