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I have a question regarding the MCQs Specimen for September 2016 on ACCA website, question 8 in case you didnt check it out yet. It reads as follow ” The management of XYZ Co has annual credit sales of $20M and accounts receivables of $4 million. Working capital is financed by an overdraft at 12% interest per year.” What is the annual finance cost saving if the management reduces the collection period to 60 days?
A) $85 479
B) $ 394 521
C) $ 78 904
D) $ 68 384
My answer was $20 m *60/365 *0.12= $394 521, which is B
BUT EXAMINERS ANSWER WAS
$20M *13/365*0.12 = $85 479
How did s/he got 13?
Receivables are currently taking 4M/20M x 365 = 73 days.
In future they will take 60 days.
So the saving they make is due to collecting receivables 13 days faster!
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