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I have a problem calculating the average receivables, i am using the method you explained in the OT lecture notes example.
The question states: In order to encourage customers to pay on time, KXP Co. proposes introducing an early settlement discount of 1% for payment within 30 days, while increasing its normal credit period to 45 days. It is expected that, on average, 50% of customers will take the discount and pay within 30 days, 30% will pay after 45 days and 20% will not change their current paying behavior.
Current receivables are $2,466,000 given in the question.
what i did: 30 days x 0.5 = 15
45 days x 0.3 = 13.5
60 days x 0.2 = 12
avg. collection period 41 days soo avg. receivables= 41/365 x $15m sales = $1,684,932
But according to the answer in the kaplan kit the avg. receivables figure is different
kaplan kit answer: (15mx0.5×30/365)+(15m x 0.3 x 45/365)+(15mx0.2×60/365)=$1,644,384kindy point out what i did wrong thanks
Either way gives exactly the same answer.
The average collection period is not 41 days, it is 15 + 13.5 + 12 = 40.5 days, so average receivables = 40.5/365 x $15m = $1,664,384
If you check the Kaplan workings, they also get $1,664,384 (I guess that you have mistyped their final answer).
Dear sir thank you soo much, i have done soo many questions but was stuck at this little silly mistake, i rounded up the 40.5 days figure to 41.
And Yes my bad i mistyped the kaplan answer. Again thank you
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