Cost of Trade Credit Grunewald Industries sells on terms of 2/10, net 40. Gross sales last year were $4,562,500 and accounts receivable averaged $437,500. Half of Grunewald’s customers paid on the 10th day and took discounts. What are the nominal and effective costs of trade credit to Grunewald’s nondiscount customers? (Hint: Calculate daily sales based on a 365-day year, calculate the average receivables for discount customers, and then find the DSO for the nondiscount customers.)
Cost of Trade Credit
Grunewald Industries sells on terms of 2/10, net 40. Gross sales last year were $4,562,500 and
Sale per day = $12,500
Discount sale = 0.5 ($12,500)
= $6,250
Account receivables attributes to discount customers = $6,250 (10)
= $62,50
Account receivables attributes to non discount customers :
Total account $437,500
Discount customers account receivable $62,500
Non discount customers account receivable $375,000
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