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Homework answers / question archive / lEfficiancy analysis) AL ei Industries bas credit sales of $155 million a yeer

lEfficiancy analysis) AL ei Industries bas credit sales of $155 million a yeer

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lEfficiancy analysis) AL ei Industries bas credit sales of $155 million a yeer. AL. management reviewed its credd policy and decided Mal wants to maintain en average collection period oU5. days.. a. What is.° mmimum level &accounts receivable thalPlei can carry and have a 45-day average colleclion period, b. 1.1,41.ei's current accounts receivable colbolion period 1,60 days, how much would have lo reduce level or accounts receivable in order to achieve ils goal of 05 days, 
a. Mal is Me mirdmum lea &accounts reavablethal.ei can carry and have a 0.S-day average colleclion period? The maximum level or accounts receivable v411 be $0 million. (Round to one decimal oace.) 
 

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a) Computation of Maximum Level of Accounts Receivables:              
Net credit sales in millions   $155       
Average collection period   45 days    
               
Average collection period = 365 / Net credit sales * Average Accounts recievable  
45 =     365 / 155 * Average Accounts receivable
Average Accounts Receivable = 19.11 millions      
               
b) Computation of Reduction in Accounts Receivables Required:              
when Average collection period is 60 days, the Average Accounts receivable is as under:
Average Accounts receivable = 60*155/365 = 25.48 millions    
               
Reduction in Accounts receivable required = 25.48 millions - 19.11 millions = 6.37 millions  
               
               
               

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