BSAIS-2nd year

3. Marvin’s Men’s Wear has the following schedule for aging of accounts receivable.

Age of Receivables, April 30, 2014

(1) (2) (3) (4)
Percent of
Month of Sales Age of Account Amounts Amount Due
April.................................. 0–30 $ 88,000 __40%__
March................................ 31–60 44,000 __20%__
February............................ 61–90 33,000 _15%___
January.............................. 91–120 55,000 _25%_
Total receivables............ $220,000 100%

a. Fill in column (4) for each month.

b. If the firm had $960,000 in credit sales over the four-month period, compute the
average collection period. Average daily sales should be based on a 120-day period.
c. If the firm likes to see its bills collected in 30 days, should it be satisfied with the
average collection period?
d. Disregarding your answer to part c and considering the aging schedule for accounts
receivable, should the company be satisfied?
e. What additional information does the aging schedule bring to the company that the
average collection period may not show?

4. Iron & Steel has projected sales of 72,000 pipes this year, an ordering cost of $6 per order,
and carrying costs of $2.40 per pipe.
a. What is the economic ordering quantity?
b. How many orders will be placed during the year?
c. What will the average inventory be?

Computations:
3. a. 88,000/220,000 = .4 or 40%
b. 44,000/220,000= .2 or 20%
c. 33,000/220,000 = .15 or 15%
d. 55,000/220,000= .25 or 25%

b. Average collection period = Accounts Receivable

Average daily credit sales
= 220,0000
960,000/120 days
= 220,000
8,0000
= 27.5 days
c. Yes
d. Yes because most accounts are collected within 30 days.
e. It goes beyond showing how many days of credit sales accounts receivables represent, to
indicate the distribution of accounts receivable between various time frames.

4.
a. EOQ = √ 2 SO
C
= √ 2 x 72,000 x 6
2.40
= √ 864,000
2.40
= √ 360,000
= 600 units
b. 72,000 units / 600 units = 120 orders
c. EOQ/2 = 600/2 = 300 units (average inventory)